Upon his release, Gotti was rewarded for his loyalty and service by being named as one of the top bosses in the Gambino family. He was ruthless with underlings, according to police monitoring his movements, telling henchmen that if they refused to obey his orders, he would blow up their houses. He reportedly engineered the deaths of many of his rivals while climbing to the top of the Gambino family. On Dec. 2, 1985, Paul Castellano and Thomas Bilotti, both underbosses of the Gambino family, were shot to death as they emerged from a popular Manhattan steak house. Gotti took over the Gambino family a short time later.
In May 1986, John O'Connor, vice president and business manager for the Carpenter's Union of New York City, offended Gotti when he ordered a group of thugs to vandalize a restaurant controlled by the Gambino family. O'Connor was one of New York's most powerful labor leaders, an imposing figure who was capable of shutting down virtually any construction project in the city unless union men were on the job. He was also reputed to be notoriously corrupt, and would allow a job to go through if a significant bribe was paid up front.
The restaurant in question, Bankers and Brokers in Lower Manhattan, was run by Philip "Philly" Modica, an alleged associate of the Gotti mob. To work on the restaurant, Modica hired a construction crew which did not belong to the local union. In the early months of 1986, O'Connor reportedly visited the restaurant and was offered a $5,000 payoff in return for his guarantee of noninterference. O'Connor later decided that $5,000 was insufficient. A gang of labor union thugs descended on the restaurant and caused $30,000 worth of damage in less than an hour. After hearing of this, John Gotti was believed to have met with his top lieutenant Angelo Ruggiero in Ozone Park, Queens, and ordered reprisals against O'Connor. A hidden microphone, placed there by the New York Organized Crime Task Force captured Gotti's statements on tapes, which were introduced as evidence in his December 1989 trial for conspiracy and assault. "We're gonna bust him up!" Gotti allegedly said. Angelo Ruggiero followed Gotti's orders and hired four gunmen from the Westies, a violent Irish street gang, to carry out the assassination of O'Connor.
The murder attempt was unsuccessful and O'Connor sustained bullet wounds in the buttocks and legs. After a month in the hospital, the union leader was back on the streets. Gotti dropped the matter and went on to consolidate his empire and expand operations into New Jersey. During this time, Manhattan District Attorney Robert M. Morgenthau reviewed hours of secretly recorded conversations between Gotti and his henchmen taken at the Bergen Hunt and Fish Social Club in Ozone Park. Since Gotti had two felony convictions on his record already, under state law a third conviction would certainly mean twenty-five years in the state prison. Morgenthau carefully built his case against Gotti. He induced two of the Westies allegedly involved in the murder plot, Francis "Mickey" Featherstone and James "Studs" McElroy, to turn informant. The two claimed they decided to shoot O'Connor as a "favor" for the "greaseballs." Featherstone wore a concealed microphone in prison and secretly recorded conversations with other gang members, which Morgenthau hoped to introduce in court.
Armed with an impressive array of evidence, the Manhattan district attorney's office had the 49-year-old Gotti arrested outside a restaurant in Little Italy on Jan. 24, 1989. Indictments were returned against Angelo Ruggiero, forty -eight (who died before the trial began), Anthony Guerrieri, sixty, and Gotti, charging all three men with conspiracy. "I'll give you three-to-one odds I'll beat this case," Gotti boasted. At issue was the admissibility of 28,000 taped conversations recorded between March 1985 and May 1986. Defense attorney Bruce Cutler argued that the tapes should not be admitted because the provision barring indiscriminate invasions of privacy did not seem to apply to Gotti. After months of pretrial wrangling, Acting State Supreme Court Justice Jeffrey Atlas decided that the tapes could be used. The trial began in the Manhattan branch of the State Supreme Court on Jan. 20, 1990. Gotti and Guerrieri pleaded not guilty. The jury heard taped conversations which portrayed Gotti as the undisputed "boss" of the Gambino outfit. In a 1986 telephone conversation a mob associate described Gotti as "God's gift to the underworld." Attorney Cutler, who had successfully defended Gotti in two other cases, derided Morgenthau as an opportunist and dismissed the FBI tapes as unimportant. "These supposed tapes show him doing nothing more than carrying on normal conversations with his friends," Cutler said to the jury. "You'll hear some rough language and some threats that are meaningless."
The jury retired Feb. 5, 1990, to consider its verdict. Four days later they returned a verdict of Not Guilty against Gotti and Guerrieri. Attorney Cutler was jubilant. "The jury was able to see through a created case," he said. When interviewed by reporters, the jurors expressed mixed feelings about the tapes. Said one: "You couldn't take anything in that tape by itself. You have to place it in context." The credibility of Westie James McElroy was another issue. "The Westies were undisciplined," one juror said. "They were wild. They didn't need anybody's permission to kill anybody." Ronald Goldstock, director of the state's Organized Crime Task Force, said, "It's only a battle, not the war."