United States v. Joseph Nocito ( 2023 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 20-2955
____________
UNITED STATES OF AMERICA
v.
JOSEPH W. NOCITO
Nocito Enterprises, Inc.; Palace Development Company, Inc.;
Jonolley Properties, Inc.,
Intervenors/Appellants pursuant to F.R.A.P. 12(a)
____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 2:18-cr-00035-001)
District Court Judge: Honorable Joy Flowers Conti
____________
Argued June 21, 2022
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BEFORE: McKEE,* RESTREPO and BIBAS, Circuit Judges
(Filed: April 3, 2023)
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OPINION OF THE COURT
____________
*
The Honorable Theodore McKee assumed senior status on
October 21, 2022.
Phillip P. DiLucente
Phil DiLucente & Associates
310 Grant Street
Suite 1801 Grant Building
Pittsburgh, PA 15219
Daniel Hartnett [ARGUED]
Clark Hill
130 East Randolph Street
Suite 3900
Chicago, IL 60601
Brandon J. Verdream
Clark Hill
301 Grant Street
One Oxford Centre, 14th Floor
Pittsburgh, PA 15219
Counsel for Intervenors/Appellants
Laura S. Irwin
Matthew S. McHale [ARGUED]
Office of United States Attorney
700 Grant Street
Suite 4000
Pittsburgh, PA 15219
Counsel for the Appellee
RESTREPO, Circuit Judge
Federal Rule of Criminal Procedure 41(g) allows
persons deprived of property by the government to petition the
courts to get it back. Here, the Rule 41(g) motion was not
intended to recover property but to suppress evidence in the
underlying prosecution. Because we conclude the Rule 41(g)
motion was part of an ongoing criminal process, the District
Court’s denial of appellants’ motion does not constitute a final
order. We must therefore dismiss this appeal for lack of
jurisdiction.
I. Factual and Procedural Background
In November 2022, Joseph W. Nocito, president and
CEO of Automated Health Systems, Inc. (AHS), pled guilty to
2
one count of a federal indictment charging him with tax fraud
in violation of 18 U.S.C. § 371. Under the terms of the plea,
Nocito accepted responsibility for the conduct charged in the
indictment’s other nine counts and agreed to pay restitution in
the amount of $15,824,056.00, pursuant to 18 U.S.C. §
3663A(3).
Count one of the indictment described Nocito’s long-
standing conspiracy to use “business entities” he owned and
controlled to commit tax fraud. Beginning in 2005 and
continuing through 2013, Nocito characterized his personal
expenses as deductible AHS business expenses and “shuffled”
AHS’s untaxed profits between different companies he owned
and controlled. These companies included the intervenors in
this case, Nocito Enterprises, Inc., Palace Development
Company, Inc., and Jonolley Properties, Inc. (collectively, the
Intervenors). Count one stated the Intervenors “performed no
significant business purpose, generated little to no independent
revenue, and were funded primarily from payments from other
Nocito companies.” JA2-49.
Nocito hid AHS’s profits in these shell companies by
falsely characterizing millions of dollars as payments for
business services, such as “‘loans,’ or as ‘management,’
‘administrative’ and ‘consulting’ expense payments.” JA2-54.
This concealment of the taxable corporate income enabled
Nocito to avoid paying $11 million in corporate income tax.
Nocito used the concealed profits stowed in the Intervenors to
pay his personal expenses, such as construction costs for his
39,000 square foot home “Villa Noci,” the salaries of his
personal butler and cook, exotic cars, and his grandchildren’s
private school tuitions. JA2-50–53. Nocito filed false federal
income tax returns for the Intervenors, claiming the personal
expenses were “deductible ordinary and necessary business
expenses.” JA2-53. He filed personal income tax returns that
“failed to truthfully report [his] true gross personal income,”
which created “millions of dollars in unpaid personal income
tax owed to the IRS.” JA2-53.
In 2013, Dennis Sundo, the secretary and chief financial
officer of AHS, provided documents to government
investigators pursuant to a cooperation agreement. Included in
the packet was Exhibit J, which was later determined by the
3
District Court to be a privileged document. The Court
described Exhibit J as a “plain, typed sheet of paper, with no
letterhead” where “Denny” [Sundo] conveyed legal advice to
“Joe” [Nocito], asking for “approval to make a journal entry on
the company books to charge off personal expenses.” JA1-6
(citing United States v. Nocito, 2020 WL 4350241, at *2 (W.D.
Pa. July 29, 2020), ECF 99 at 6 n.8). The Court found there
was no indication the document belonged to the intervening
companies, and the Intervenors recognized that Sundo, the
purported author of Exhibit J, was not one of their employees.
In November 2017, Sundo testified before the grand
jury. In response to a question from the prosecution, Sundo
explained what Exhibit J was and read its contents into the
record. After his indictment, Nocito moved for pre-trial
discovery of all the documents provided by Sundo to support a
possible motion to suppress based on government misconduct.
Specifically, Nocito sought to explore a possible government
intrusion into his individual attorney-client privilege through
Sundo’s cooperation.
After two evidentiary hearings the District Court denied
the motion, concluding the government had no obligation to
turn over the documents. The Court found Nocito could not
compel the government to provide Exhibit J—the only
document “arguably applicable to the invasion of Nocito’s
attorney-client privilege”—because he did not provide a
“colorable basis” for his governmental misconduct claim.
JA2-218–223. Nocito could not show the government
possessed an objective awareness of an “ongoing, personal
attorney-client relationship” referenced in Exhibit J, nor show
a “deliberate intrusion into that relationship.” JA2-217.1
1
The Court ruled proving such an objective awareness was
impossible because Nocito’s attorneys initially represented his
businesses before expanding their representation to include his
personal interests as well. It also found Nocito could not prove
the government deliberately intruded into any privileged
relationship given that Sundo voluntarily provided the
government with Exhibit J. Finally, the Court concluded it did
not need to address whether Nocito was prejudiced by the
introduction of Exhibit J given the “overwhelming evidence
that was obtained during the IRS investigation,” which
4
Nocito moved for reconsideration twice, both times re-
asserting his allegations of intrusion into his attorney-client
privilege. Both motions for reconsideration were denied.
In response to these denials, one of Nocito’s attorneys
entered his appearance on behalf of the Intervenors and applied
to have the three Nocito-owned companies intervene in the
prosecution. The same lawyers represent both Nocito and the
Intervenors, arguing the government intruded on the
Intervenors’ attorney-client privilege by using Exhibit J in the
Nocito grand jury proceedings. Attached to the application for
intervention was a motion for the return of property pursuant
to Rule 41(g).
The property the Intervenors sought to have returned
was not Exhibit J itself—the Intervenors readily concede they
possess their own copies of the actual document—but the
privilege attached to the legal advice disclosed in the letter.
The Intervenors argue that the “return” of this “property”
would prevent the government from using Exhibit J at all
future proceedings, as well as eliminating any influence the
document may have had on the government’s investigation
into Nocito’s tax fraud.
In July 2020, the District Court permitted the companies
to intervene but denied their Rule 41(g) motion. It found the
Intervenors—even assuming they could establish Exhibit J was
privileged and the privilege “could be viewed as a property
interest” of which they were deprived—were attempting to use
Rule 41(g) to improperly suppress Exhibit J from the evidence
of fraud against Nocito. JA1-11. The Court recognized Rule
41(g) does not serve the same purpose as the exclusionary rule,
nor is a motion for the return of property an effective means
for suppressing evidence, given that Rule 41(g) allows a court
to “protect access to the property and its use in later
proceedings.” Fed. R. Crim. P. 41(g).2 While recognizing the
occurred before Sundo provided any documents to
investigators. JA2-227.
2
The relevant portion of Fed. R. Crim. P. 41(g) is as follows:
(g) Motion to Return Property. A person
aggrieved by an unlawful search and seizure of
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government stated it did not intend to use Exhibit J at Nocito’s
trial, the Court nevertheless ruled the document must be
accessible in case Nocito “open[ed] the door” to such
questioning. JA1-11. Finally, the Court observed the
Intervenors can renew their Rule 41(g) motion at the
conclusion of the government’s case.
II. Analysis
Before us is the Intervenors’ appeal of the District
Court’s denial of their Rule 41(g) motion. In raising this
challenge, the Intervenors make arguments regarding the
motion’s merit, the relief to which they are entitled, and the
applicable standard of review.3 These arguments, however,
cannot be addressed unless the order denying the motion was
final. For the reasons below, we conclude it was not and we
therefore lack the jurisdiction to address the Intervenors’
claims.
Rule 41(g) allows persons “aggrieved by an unlawful
search and seizure or by the deprivation of property” to move
property or by the deprivation of property may
move for the property’s return. . . . The court
must receive evidence on any factual issue
necessary to decide the motion. If it grants the
motion, the court must return the property to the
movant, but may impose reasonable conditions
to protect access to the property and its use in
later proceedings.
3
They claim a Rule 41(g) motion is reviewed through the same
lens as a civil complaint, requiring the District Court to accept
all well-pleaded allegations in their motion to be accepted as
true. Their appeal is premised on the theory that an attorney-
client privilege constitutes a form of property that falls under
Rule 41(g)’s purview and the Intervenors are entitled to its
“return.” Appellants’ Br. 42-43. They allege the government
illegally “purloined” Exhibit J, meaning the Intervenors were
“aggrieved by an unlawful search and seizure” under Rule
41(g). Appellants’ Br. 36; Fed. R. Crim. P. 41(g). Finally, the
Intervenors argue they are entitled to an evidentiary hearing to
uncover the ways the government exploited the privileged
content in Exhibit J.
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the government to return property. Fed. R. Crim. P. 41(g).
Although addressed by the same rule of criminal procedure,
motions to suppress and motions to return property serve
different and distinct interests: “Suppression helps ensure that
law enforcement personnel adhere to constitutional norms by
denying them, and the government they serve, the benefit of
property that is unlawfully seized. Rule 41(g) is concerned
with those whose property or privacy interests are impaired by
the seizure.” United States v. Comprehensive Drug Testing,
Inc., 621 F.3d 1162, 1173 (9th Cir. 2010) (en banc) (per
curiam), overruled in part on other grounds as recognized by
Demaree v. Pederson, 887 F.3d 870, 876 (9th Cir. 2018) (per
curiam).
Whereas only criminal defendants can seek
suppression, the class of people impaired by the loss of their
property is much broader. Id. Whether evidence should be
suppressed is a question “intimately involved” in the criminal
process. United States v. 608 Taylor Ave., 584 F.2d 1297, 1300
(3d Cir. 1978) (citing DiBella v. United States, 369 U.S. 121,
131–32 (1962)). An order deciding a suppression motion is
“considered to be merely a step in the criminal process” and
does not constitute a final order. Id. Alternatively, an order
denying a Rule 41(g) motion can be final because such a
motion, unlike a motion to suppress, could be premised entirely
on property rights and not intertwined with a criminal
prosecution in any way. Id. If a motion for the return of
property is made independently of a criminal prosecution—in
that it is not intended to gain some strategic advantage for a
criminal defendant—the order denying relief is final.
Under 28 U.S.C. § 1291, we only have subject matter
jurisdiction if the District Court’s denial of the Intervenors’
Rule 41(g) motion constitutes a final decision. The
government argues the Intervenors’ motion was essentially a
motion to suppress all evidence derived from Exhibit J from
Nocito’s trial. The Intervenors disagree, claiming that the true
purpose of their motion was to regain possession of their
property and the order denying relief is final because it “finally
resolves their privilege and information-sharing claims.”
Appellants’ Br. 1. Therefore, to determine whether the order
denying the Rule 41(g) motion is final under § 1291, we must
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determine what the Intervenors sought to accomplish by
litigating the motion in the District Court.
The policy behind § 1291’s finality rule is well-
established: the rule is intended to prohibit “piecemeal
appellate review” and discourage the disruption of “ongoing
criminal prosecutions.” In re Grand Jury, 635 F.3d 101, 103
(3d Cir. 2011) (citing DiBella, 369 U.S. at 124, 126–29). The
need for such discouragement is apparent here, given the time
and resources already spent litigating the use of Exhibit J in
Nocito’s prosecution. Sundo provided Exhibit J to the
government in 2013 and testified before the grand jury in 2017.
Since his indictment in 2018, Nocito has litigated multiple
motions and conducted two evidentiary hearings, all focused
on the government’s use of Exhibit J. The Intervenors filed
their motion concerning Exhibit J, along with their request for
an evidentiary hearing, in the interim. They filed notice for the
instant appeal in September 2020. Nocito’s criminal trial,
which is no longer pending due to his recent guilty plea, would
have been delayed by this appeal, given the evidentiary
implications of the relief sought.
To the extent the Intervenors’ Rule 41(g) motion was
intended to serve as an “instrument of harassment” or a delay
tactic, such gamesmanship is contrary to the law. DiBella, 369
U.S. at 129. Far from harmless, “undue litigiousness” wastes
limited judicial resources, hampers “the effective and fair
administration of the criminal law,” and stalls the
implementation of justice. Id. at 124–26. Recognizing that
Rule 41(g) motions may be misused to hinder criminal
prosecutions, the Supreme Court held an order denying the
motion for the return of property is appealable only if it is
independent of any related criminal case. Id. at 131. To assess
a motion’s independence, DiBella applied a two-pronged
test—the motion must be: (1) “solely for [the] return of
property” and (2) “in no way tied to a criminal prosecution in
esse against the movant.” Id. at 131–32. Here, neither prong
is met, and we therefore do not have jurisdiction.
a. Prong one: Motion Solely for the Return of Property
In determining whether the Rule 41(g) motion seeks
more than the mere return of property, we must look to the
“essential character of the motion.” Government of Virgin
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Islands v. Edwards, 903 F.2d 267, 272 (3d Cir. 1990). In so
doing, this Court must assess whether the motion is intended
not for property retrieval but “for strategic gain at a future
hearing or trial,” such as delaying an underlying prosecution or
suppressing evidence. In re Sealed Case, 716 F.3d 603, 607–
08 (D.C. Cir. 2013).
If the relief sought in a Rule 41(g) motion is indicative
or suggestive of the suppression of evidence, the denial of such
relief is not a final judgment. Id. at 608–09. This is true even
though granting a motion to return property no longer results
in suppression; under the current version of Rule 41(g), courts
can maintain access to the returned property to enable its use
at future proceedings. Fed. R. Crim. P. 41(g) (“[T]he court . .
. may impose reasonable conditions to protect access to the
property and its use in later proceedings.”). But this does not
mean the movant who misuses the rule by improperly seeking
the suppression of evidence along with the return of property
can immediately appeal a denial. If the motion indicates an
intention to restrict the government’s access to evidence—such
as requesting the government return all the copies of a
document, rather than just the original—this Court may
conclude the motion served a purpose aside from the return of
property and deem the order denying relief not a final
judgment. In re Grand Jury, 635 F.3d at 104–05.
The Intervenors’ Rule 41(g) motion sought more than
the return of property. The essence of their motion is made
plain by the nature of the property they purportedly seek to
repossess. The Intervenors’ motion is premised on the
presumption that attorney-client privilege constitutes property
under the purview of Rule 41(g). They provide no legal
authority to support this presumption. Despite this absence,
the Intervenors argue they are entitled to regain “effective
possession” of Exhibit J, which would mean restoring the
confidential nature of the privileged communication. JA2-287.
This restoration would require “undoing” any alleged
derivative use of Exhibit J, such as the results of any
“investigative strategies” the government pursued because of
the document, as well as the use of Exhibit J at Nocito’s grand
jury proceeding. JA2-288, 292. Rather than merely request
copies, the Intervenors seek to undo the government’s use of
Exhibit J, “root and branch.” Appellants’ Br. 58. The
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Intervenors argue the relief requested requires an evidentiary
hearing to uncover the government’s “discreet informal
discovery activities” tied to the document. Appellants’ Br. 64.
Until the confidential nature of Exhibit J is “returned,” the
Intervenors claim they are entitled to injunctive relief to
prevent its use at further proceedings, such as Nocito’s
criminal trial. At bottom, the Intervenors’ Rule 41(g) motion
sought to halt the prosecution against Nocito while the movants
excavated the evidence of fraud underlying the grand jury’s
indictment.
The Intervenors justify their use of Rule 41(g) by
claiming it is their only means to vindicate their “property”
right to the privileged communication.4 Viewed in the context
of the record, however, the motion is plainly Nocito’s attempt
to have his shell companies achieve what he could not. After
his efforts to challenge the use of Exhibit J failed, Nocito had
three companies he owns, controls, and legally represents file
the instant Rule 41(g) motion to have Exhibit J “returned.” The
Intervenors do nothing to discourage this conclusion, admitting
that Nocito’s filings “assert some common legal theories
concerning the government’s improper intrusions into and
exploitation of privileged and protected information” as those
4
While a Rule 41(g) motion may be the Intervenors’ means for
repossessing property, this appeal is not their only opportunity
to litigate such a motion. As the District Court noted, the
Intervenors could refile their Rule 41(g) motion and reassert
their claims once the Nocito prosecution is over. See United
States v. Furina, 707 F.2d 82, 85 (3d Cir. 1983). The
Intervenors counter the “property” they want returned is
attorney-client privilege, which would be destroyed if
introduced at future proceedings. But this does not render the
ruling denying the Rule 41(g) motion immediately appealable,
given the nature and scope of the relief sought. Moreover, the
Supreme Court has held “orders adverse to the attorney-client
privilege” do not warrant immediate appeal under the collateral
order doctrine; “postjudgment appeals generally suffice to
protect the rights of litigants and ensure the vitality of the
attorney-client privilege.” Mohawk Indus., Inc. v. Carpenter,
558 U.S. 100, 108–09 (2009). To the extent the motion seeking
the return of property is genuine, the Intervenors can pursue
relief after Nocito is sentenced.
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espoused in their motion to return property. Appellants’ Br. 5.
Thus, the Intervenors use Rule 41(g) as a pretext in order to act
on Nocito’s behalf. Because we conclude the essence of the
motion is to undermine the government’s efforts to prosecute
Nocito for tax fraud, the District Court’s denial of relief is not
appealable under DiBella’s first prong.
b. Prong two: Tied to underlying prosecution in esse.
Although the failure to meet the first prong of DiBella
is sufficient to warrant dismissal for lack of jurisdiction, we
conclude the Intervenors fall short of satisfying the second
prong as well. The Intervenors argue the denial of their Rule
41(g) motion can be immediately appealed because they are
not named defendants in the prosecution against Nocito. While
this is an accurate statement of fact, it defies all reason to
conclude they are “in no way tied” to the ongoing criminal
prosecution against their owner. DiBella, 369 U.S. at 132.
Nocito pled guilty to one count of tax fraud on
November 17, 2022, but has yet to be sentenced. According to
the District Court docket, the parties have agreed to continue
Nocito’s sentencing until June 2023. Thus, the underlying
prosecution against Nocito remains ongoing. Berman v.
United States, 302 U.S. 211, 212 (1937) (“Final judgment in a
criminal case means sentence. The sentence is the judgment.”).
That Nocito has pled guilty does not end the prosecution
because the sentence stands as the “final determination of the
merits of the criminal charge.” Id. If the Intervenors are tied
to Nocito’s prosecution, we lack jurisdiction until that
prosecution becomes final.5
The Intervenors argue they had a business purpose,
bank accounts, and employees, but do not deny that Nocito is
their sole owner and fully controls all three companies. Since
argument, Nocito has pled guilty to one count of the indictment
and accepted responsibility for the conduct charged in the
remaining nine counts. The indictment provides that, although
not named as defendants, the Intervenors acted as extensions
5
Under the terms of the plea, Nocito waived his right to appeal
the conviction but can appeal his sentence if it exceeds the
maximum statutory limits or unreasonably exceeds the
guidelines determined by the sentencing court.
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of Nocito and were used by him to perpetuate tax fraud. Count
one alleged the Intervenors concealed profits from AHS;
Nocito paid the companies fabricated administrative,
management, and consulting fees with untaxed AHS profits.
Count one also outlined how Nocito used the Intervenors to
disguise his personal expenses by claiming they were the
companies’ “ordinary and necessary business expenses.” JA2-
57-58. Nocito filed false tax returns for the Intervenor
companies claiming the personal expenses as deductions, and
false personal income tax returns excluding the income
“shuffled” to the Intervenors. As vehicles for Nocito’s fraud,
they were subjected to the government’s investigation and their
fraudulent business practices were exposed. Given their
crucial role in the tax fraud scheme, it strains credibility to say
the companies are “in no way tied” to the prosecution in esse
against Nocito. In re Grand Jury, 635 F.3d at 105 (quoting
Furina, 707 F.2d at 84). We conclude then, under this second
prong of DiBella, that the order denying the appellant’s Rule
41(g) motion is not final.6
III. Conclusion
For the foregoing reasons, we conclude the denial of the
appellants’ motion for the return of property is not appealable,
and we therefore dismiss this appeal for lack of jurisdiction.
6
The Intervenors argue they are entitled to an immediate
appeal under Perlman v. United States, 247 U.S. 7 (1918), and
its progeny. The Supreme Court characterized the rule in
Perlman as: “a discovery order directed at a disinterested third
party is treated as an immediately appealable final order
because the third party presumably lacks a sufficient stake in
the proceeding to risk contempt by refusing compliance.”
Church of Scientology v. United States, 506 U.S. 9, 18 n.11
(1992). Perlman does not apply to the Intervenors’ case, which
does not involve a subpoena or discovery order directed at a
disinterested third party. Id. The Intervenors are not
disinterested parties but are instead directly involved in the
underlying prosecution. Moreover, we note that Perlman did
not address Rule 41(g) motions and stretching Perlman to
cover the appeals from the denial of such motions would
increase the risk that Rule 41(g) would be used as an
instrument to harass and delay trials. DiBella, 369 U.S. at 129.
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