The U.S. Court of Appeals here yesterday appointed New York lawyer Leon Silverman as special prosecutor to investigate allegations of union corruption involving Secretary of Labor Raymond J. Donovan.
The appointment of a special prosecutor was recommended last week by Attorney General William French Smith on the basis of a preliminary FBI inquiry into allegations that Donovan was present at a 1977 luncheon when an official of his New Jersey construction company handed an envelope containing $2,000 in cash to a New York labor union leader.
Donovan was executive vice president of Schiavone Construction Co. until he was chosen by President Reagan as a member of the Cabinet. Donovan has denied that his former construction firm was involved in any improprieties, and has said he has never been in Prudenti's restaurant in Long Island City, where the alleged payoff is said to have taken place.
Last week he told reporters that he would welcome the appointment of a special prosecutor.
Under the provisions of the 1978 Ethics in Government Act the appointment of a special prosecutor is required if, after a preliminary Justice Department investigation into allegations of wrongdoing by a top U.S. official, the attorney general decides that further investigation is warranted.
Vernon Louviere, a spokesman for Donovan, said yesterday, "As the secretary pointed out in his public statement last week, the appointment of a special prosecutor is the only way to prove the falsity of the published allegations once and for all. Now that the special prosecutor has been named, the secretary repeats his pledge of full cooperation in all aspects of the inquiry."
During a news conference last week Reagan said he saw no reason Donovan should step aside if a special prosecutor was named. Such action, he said, "does not connote guilt or any evidence of wrongdoing."
Silverman said in a New York news conference yesterday that he would approach the investigation with a "sense of urgency."
"I do not intend to dawdle," he said, noting that a five-year statute of limitations may be running out on some of the Donovan allegations, which date back to May or June of 1977.
In appointing the special prosecutor, the court went beyond Smith's recommendation that the prosecutor's jurisdiction be limited to the allegation concerning the $2,000 payment and the issue of whether Donovan told the truth at his Senate confirmation hearings in relation to that allegation.
Instead, the court ordered that Silverman have authority to investigate "any other allegation or evidence of violation of any federal criminal law by Secretary Donovan developed during the special prosecutor's investigations" into the alleged payoff.
Silverman would not say how far he plans to carry the investigation, and Justice Department sources were divided on exactly what the court order meant. Some interpreted it to mean that he may not go beyond the $2,000 payoff allegation, while others said it could be read as broadly as Silverman wants.
Donovan told the Senate Labor Committee during his confirmation hearings last January, "We the Schiavone firm have never been extorted. We have never made a payoff."
Donovan categorically denied that his former construction firm had engaged in any improprieties.
"No executive officer of Schiavone Construction Co., no employe of Schiavone Construction Co., has ever bought labor peace," he said.
A lengthy investigation before his confirmation by the Senate failed to support allegations that Schiavone had given no-show jobs to the Teamsters union and had bought labor peace from Teamsters officials.
Mario Montuoro, the man who says he was in the restaurant with Donovan when the $2,000 changed hands, also has alleged that Schiavone bestowed other favors on Local 29 officials in apparent violation of federal labor law, but none of those claims has involved Donovan personally. Montuoro is the former secretary-treasurer of Laborers International Local 29 in New York.
In addition, Joyce Cole, a former bookkeeper-secretary for Local 29, has said Donovan's former company regularly made out paychecks to "ghost employes," checks that union officials then cashed for themselves.
Cole, who has been used as a witness by the government in other cases involving Local 29, said she did not know whether officials of Schiavone were aware of the use of ghost employes.
Arthur F. Schwartz, attorney for both Montuoro and Cole, said yesterday, "We are heartened to see the Court of Appeals has given the special prosecutor the power to investigate and prosecute all the allegations concerning Mr. Donovan and Schiavone Construction. Anything less . . . would only raise new questions about the government's failure to prosecute these violations of the law prior to Mr. Donovan's appointment."
Schwartz said his clients are prepared "to cooperate fully in this investigation if the special prosecutor chooses to exercise all power given to him and forsakes the narrow investigation that some would like to have him undertake."
Montuoro has claimed that Donovan was present at the luncheon where another Schiavone vice president, Joseph DiCarolis, handed Louis Sanzo, the president of Local 29, an envelope containing $2,000 in $100 bills.
The alleged payoff, according to Montouro, was in appreciation for Local 29's work for Schiavone on a previous subway contract. He has said there was discussion, at the same luncheon, of obtaining Local 29, rather than another union local representing more skilled and higher paid workers, for another subway contract.
At a news conference last week, Donovan called Montuoro "a damnable and contemptible liar."
In his report to the Court of Appeals, Smith noted that three other Schiavone officials allegedly at the 1977 meeting, in addition to Donovan, have denied the allegations.
"No direct corroboration of the informant's allegation has been discovered," Smith said.
However, he added that the attorney representing Sanzo has refused to allow his client to be interviewed by the FBI regarding the alleged payoff. "It is impossible to complete this investigation without exhausting all appropriate legal means to obtain this official's testimony," the attorney general said.
Sanzo was convicted of tax evasion earlier this year, and during a recent hearing in federal court in New York was named as a link between Local 29 and an underworld family.
Smith's report, which was released for the first time yesterday, said the Justice Department has several "active investigations" of the Schiavone Construction Co. that do not involve Donovan.
"Because of the complex, ongoing nature of the investigations, the department intends to maintain jurisdiction over these matters, recognizing that if any specific information within the meaning of the act the 1978 ethics act is uncovered the procedures mandated by the act will be followed," Smith said.
Under the terms of the act, Silverman must decide if the allegations are serious enough to warrant empaneling a grand jury to consider charges against Donovan.
Silverman is the third special prosecutor to be named under the 1978 ethics law. Twice during the Carter administration special prosecutors were appointed to check allegations that top Carter aides had used cocaine. In both cases, involving Hamilton Jordan and Tim Kraft, the men were cleared of wrongdoing.
Silverman is a senior litigation partner with the large New York corporate law firm of Fried, Frank, Harris, Shriver & Jacobson. Another partner in the firm is R. Sargent Shriver, a brother-in-law of Sen. Edward M. Kennedy (D-Mass.) and the Democratic vice presidential candidate in 1972.
Silverman served as an assistant deputy attorney general in 1958-59 under then-Attorney General William Rogers, and earlier was an assistant U.S. attorney for the Southern District of New York under then-U.S. Attorney J. Edward Lumbard, one of the three judges who selected the special prosecutor.
A graduate of Yale law school, Silverman helped write many of New York state's human rights laws in the late 1960s, and is a past president of the Legal Aid Society. He is president-elect of the American College of Trial Lawyers.
The special prosecutor panel in the U.S. Court of Appeals is headed by U.S. Circuit Judge Roger Robb in Washington, and includes two senior appellate judges, Lumbard, Silverman's old boss, of the 2nd U.S. Circuit Court of Appeals with offices in New York City, and Lewis R. Morgan of the 11th Circuit, with offices in Atlanta.