Opinion
Civil Action Nos. 02-1733, 04-240, 02-1780, 04-0296, 02-1783, 04-0523, 02-1803, 04-0300 Section: "S" (5), Ref: Cr. No. 95-0106.
June 29, 2005
ORDER AND REASONS
IT IS HEREBY ORDERED that the motions to vacate, set aside, or correct sentence, pursuant to 28 U.S.C. § 2255, of Michael O'Keefe, Sr., John O'Brien, Eric Schmidt, and Gary Bennett are DENIED. (Documents #707, #711, #701, and #706.)
IT IS FURTHER ORDERED that Gary Bennett's motion for additional discovery is DENIED. (Document #754.)
I. BACKGROUND
The underlying facts of this case are well documented and shall not be repeated here. See United States of America v. Michael O'Keefe. Sr., No. 95-0106, Order and Reasons (Lemmon, J.) (October 23, 2003, E.D. La.), affirmed United States v. O'Keefe, No. 03-31061, 2004 WL 22914032 (5th Cir. Dec. 15, 2004). After pursuing available remedies in this court and the Court of Appeals, Michael O'Keefe, Sr., John O'Brien, Eric Schmidt, and Gary Bennett filed motions to vacate, set aside, or correct sentence, pursuant to 28 U.S.C § 2255. The following issues are raised in common by all of the movants, who have adopted each other's memoranda and incorporated them as their own:
1) They were deprived of their right of due process on grounds that a) the government failed at trial to meet its obligations under Brady v. Maryland, b) prosecutors misrepresented evidence in an attempt to influence the jury, c) they were charged in a defective indictment, d) there was a fatal variance between the indictment and the evidence, e) the government obtained the indictment and conviction through the use of perjured testimony, f) the trial court denied a motion for a continuance, g) the conviction was obtained by testimony given in exchange for something of value, and h) cumulative errors violated due process;
2) relying on United States v. Booker, 125 S.Ct. 738 (2005) and Apprendi v. New Jersey, 120 S.Ct. 2348 (2000), the movants allege that they received an improper sentence when the district court imposed sentence under the mistaken belief that it could not downwardly depart, and facts were found by the judge under a preponderance of the evidence standard, rather than by the jury beyond a reasonable doubt;
3) the federal fraud statute, 18 U.S.C § 1346, is void for vagueness;
4) the sentence of restitution was computed incorrectly and did not comply with the law;
5) they were deprived of their right of effective assistance of counsel because counsel failed a) to investigate and present a defense, b) to interview and call witnesses, including codefendant Bennett, c) to challenge the indictment, d) to raise meritorious issues on appeal (the indictment, denial of a continuance, restitution), e) to make proper objections, f) to move for a downward departure, and g) to achieve severance from O'Keefe. In addition, Bennett and O'Brien argue that they were deprived of their Sixth Amendment right because counsel had a conflict of interest in representing both of the defendants.
The movants contend that counsel was ineffective in failing timely to file a Rule 33 motion for a new trial based on newly discovered evidence. This argument is factually incorrect because the court previously found that the Rule 33 motion was timely. The court does not revisit the arguments that were considered in the order denying the Rule 33 motion and affirmed on appeal. Further, the argument that the movants were denied their right to a new trial by the Court of Appeals is not properly before this court.
The movants seek an evidentiary hearing to present all of the issues. The court, in its discretion, determines that an evidentiary hearing is not necessary. Most of the issues have been extensively developed through previous hearings. As to those issues that are properly before the court and are addressed in this § 2255 motion, the defendants' factual allegations are taken as true, and the claims can be resolved on this record as a matter of law. See United States v. Samuels, 59 F.3d 526, 530 (5th Cir. 1995).
II. DISCUSSION
A. Claims cognizable in a § 2255 motionThe government argues that the only claims that are cognizable in this § 2255 motion are the movants' claims that they were denied their Sixth Amendment rights of effective assistance of counsel. The government contends that the remaining claims were previously considered by this court, do not involve a constitutional right, or are procedurally barred for failure to raise them on direct appeal.
"Relief under . . . § 2255 is reserved for transgressions of constitutional rights and for a narrow range of injuries that could not have been raised on direct appeal and would, if condoned, result in a complete miscarriage of justice." United States v. Vaughn, 955 F.2d 367, 368 (5th Cir. 1992). Constitutional or jurisdictional claims that could have been raised on direct appeal are not reviewable unless a defendant shows cause for his procedural default and actual prejudice as a result of the error.See United States v. Drobny, 955 F.2d 990, 994-95 (5th Cir. 1992). "To invoke the procedural bar, however, the government must raise it in the district court." Id. The government has invoked the procedural bar in this case.
1. Due process arguments previously considered
The various due process arguments concerning Brady violations, the denial of a continuance and severance, perjured testimony, prosecutorial misconduct, the sufficiency of the evidence, and cumulative error that have been considered and rejected in prior proceedings will not be considered on § 2255 review. See United States v. Segler, 37 F.3d 1131, 1134 (5th Cir. 1994).
2. Due process arguments not previously raised: procedural bar
To the extent that the movants have raised due process arguments that could be liberally construed as not having been raised in previous motions or on direct appeal, the movants have not shown cause for the procedural default and actual prejudice if the claims are not addressed on collateral review.
Bennett asserts the actual innocence exception to the procedural bar. "Actual innocence" means that Bennett did not commit the crime. See Murray v. Carrier, 106 S.Ct. 2639 (1986). Bennett contends that he is actually innocent and has been found guilty by association without any independent evidence of his guilt at trial. Bennett argues that there was no evidence presented to the jury that he committed a crime and that he was convicted because he was indicted with others that the jury found guilty.
O'Brien also asserts actual innocence. He argues that there is an objective absence of any testimony or evidence associating him with any illegal activity. O'Brien contends that he did not commit any crime, and that no evidence of a crime was presented to the jury.
Assuming arguendo that the actual innocence exception extends to a noncapital sentence, Bennett and O'Brien have not presented evidence of actual innocence. See Dretke v. Haley, 124 S.Ct. 1847, 1851 (2004) (acknowledging a growing divergence of opinion "regarding the availability and scope of the actual innocence exception in the noncapital sentencing context"). The movants challenged the sufficiency of the evidence to support the conviction in a motion for judgment of acquittal. Judge Sear found that there was sufficient evidence "to support a finding by a reasonable jury that defendants O'Keefe, Schmidt, O'Brien, and Bennett in fact entered into a scheme or artifice to defraud that was substantially the same as the one described in the indictment."
On direct appeal, the conviction was affirmed. The Court of Appeals stated that Associated Insurance Consultants, Inc., a company owned by Schmidt, Bennett, and O'Brien, "signed a secret management contract with [Builders and Contractors Insurance Limited]" and "over $5 million in assets of [Physicians National Risk Retention Group] ended up in the personal bank accounts of Schmidt, Bennett, and O'Brien," after these funds passed through an account in the Bahamas. United States v. O'Keefe, No. 99-30082 (5th Cir. Sept. 25, 2000). The Court of Appeals concluded that Bennett's appeal presented a "version of events that is completely at odds with the government's theory of the case."Id. Bennett argued that the "defendants received a large profit not because of fraud, but only because the anticipated claims were higher than the actual claims, and there was no contractual provision for the return of profits to the DOI or the estate of PNRRG." The Court of Appeals held that, "[w]hile Bennett's version of events is not wholly implausible, we note that much of his argument is made without citation to the record. In any event, the evidence described above is more than sufficient to uphold the jury verdict." Id. Moreover, "[g]iven the totality of the evidence presented, a rational jury simply was not required to accept Bennett's explanation on appeal for why millions of dollars ended up in his personal bank account and the accounts of other defendants." Id. "Though defendants, including Bennett, claim the contractual arrangement between BCI and AIC was disclosed, there was ample evidence to the contrary. The jury could have reasonably concluded that defendants were able to secure 'profits' from an insolvent insurer only because reinsurance from an established company was canceled, claims were not paid, and coverage for the insured physicians was not renewed." Id. Therefore, O'Brien and Bennett have not established that the actual innocence exception applies. The claims are procedurally barred.
3. Vagueness of 18 U.S.C. § 1346
The movants challenge the constitutionality of the federal fraud statute on grounds of vagueness. In order to receive review of this issue for the first time in a § 2255 motion, the movants must show cause for the procedural default of not raising the issue on direct appeal and actual prejudice if the issue is not addressed. The movants have not asserted cause and prejudice with regard to this challenge; therefore, the claim is procedurally barred. 4. Review of Sentence: Is Booker applicable to initial § 2255 motions?
The movants seek a review of their sentence under United States v. Booker, 125 S.Ct. 738 (2005) and Apprendi v. New Jersey, 120 S.Ct. 2348 (2000). The question whether a Booker issue can be raised in an initial § 2255 motion depends on whether it is a new rule of constitutional procedure. New rules of constitutional procedure usually cannot be raised in a § 2255 motion. See Teague v. Lane, 109 S.Ct. 1060 (1989).
Booker is based on an extension of Apprendi v. New Jersey, 120 S.Ct. 2348 (2000), which held that "any fact [other than the fact of a prior conviction] that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury and proved beyond a reasonable doubt." Apprendi is not retroactively applicable to initial petitions under § 2255.See United States v. Webster, 392 F.3d 787, 792 (5th Cir. 2004). The Supreme Court extended the rule announced inApprendi to capital cases in Ring v. Arizona, 122 S.Ct. 2428 (2002). In Webster, the Court of Appeals stated that, although it had not yet determined whether Ring applies retroactively, "because the rule in Ring is essentially an application ofApprendi, logical consistency suggests that the rule announced in Ring is not retroactively applicable." 392 F.3d at 792 (internal quotation omitted) (citing In re Johnson, 334 F.3d 403, 405 n. 1 (5th Cir. 2003)).
The Supreme Court extended the holding of Booker "to all cases on direct review" and has not expressly declared Booker to be retroactive to cases on collateral review. Booker, 125 S.Ct. at 769. Every court that has considered whether Booker applies retroactively to cases on collateral review has held that it does not, as exemplified by the following cases. InMcReynolds v. United States, 397 F.3d 479 (7th Cir. 2005) (an initial § 2255 motion), the Court of Appeals held that Booker must be treated as a procedural decision for purposes of retroactivity analysis. The Court of Appeals found all but conclusive the Supreme Court's decision in Schriro v. Summerlin, 124 S.Ct. 2519 (2004), where the Supreme Court held that Ring, which applied Apprendi's principles to a particular subject, is not retroactive on collateral review.McReynolds, 397 F.3d at 480. Further, Booker does not represent a "watershed" change that fundamentally improves the accuracy of the criminal process because the only change is the degree of flexibility enjoyed by judges in applying the sentencing guidelines. Id. at 481. Thus, the Court of Appeals concluded that Booker does not apply retroactively to criminal cases that became final before its release on January 12, 2005.Id.
In United States v. Humphress, 398 F.3d 855, 861 (6th Cir. 2005) (an initial § 2255 motion), the Court of Appeals held that the Booker rule is a new rule of criminal procedure that was "not dictated by precedent existing at the time that Humphress's conviction became final." Further, the Court held that Booker's new rule did not fall within Teague's exceptions to the nonretroactivity rule. Id. at 862.
In In re Elwood, 408 F.3d 211, 212-13 (5th Cir. 2005), the Court of Appeals held that Booker did not apply retroactively on collateral review in a successive § 2255 motion. Relying on Tyler v. Cain, 121 S.Ct. 2478, 2482 (2001), the Court of Appeals concluded that the Supreme Court has not madeBooker retroactive to cases on collateral review and has strongly suggested in Schriro that "Apprendi, and by logical extension, Blakely and Booker do not apply retroactively on collateral review." 408 F.3d at 213. In this case, the same logical consistency suggests that Booker does not apply retroactively to this initial § 2255 motion. The court holds that Booker does not apply retroactively to an initial § 2255 motion.
5. Challenge to the indictment
The movants' challenges to the indictment are nonjurisdictional and can be made on collateral attack only under exceptional circumstances. See United States v. Dyer, 136 F.3d 417, 425 (5th Cir. 1998). The challenge to the indictment was rejected by Judge Sear in August 1996, and the decision was not appealed. The movants have not made a showing that exceptional circumstances warrant collateral review of the issue.
B. Ineffective assistance of counsel claims
The claims that counsel was ineffective are proper in a § 2255 motion because they are of constitutional magnitude and, as a general rule, cannot be resolved on direct appeal. United States v. Pierce, 959 F.2d 1297, 1301 (5th Cir. 1992) (citing inter alia United States v. Higdon, 832 F.2d 312, 313-14 (5th Cir. 1987)). Accordingly, the issues properly before the court are those that concern a violation of the movants' Sixth Amendment rights.
To support the claims of ineffective assistance of counsel, the movants must prove two components: 1) that counsel made errors that were so serious that they were deprived of their Sixth Amendment guarantee and 2) that the deficient performance prejudiced the movants' defense. Strickland v. Washington, 104 S.Ct. 2052 (1984). A convicted defendant "must show that counsel's representation fell below an objective standard of reasonableness" under prevailing professional norms. Id. at 2064-65. The reasonableness of counsel's conduct must be judged on the facts of the particular case as of the time of counsel's conduct. Id. at 2066. "Judicial scrutiny of counsel's performance must be highly deferential." Id. at 2065. "[C]ounsel is strongly presumed to have rendered adequate assistance and made all significant decisions in the exercise of reasonable professional judgment." Id. "[T]he defendant must overcome the presumption that, under the circumstances, the challenged action might be considered sound trial strategy." Id. "An error by counsel, even if professionally unreasonable, does not warrant setting aside the judgment of a criminal proceeding if the error had no effect on the judgment." Id. at 2066. The deficient performance must be prejudicial to the defense. Id.
In order to show prejudice, the defendant must demonstrate that counsel's errors are so serious as to deprive him of a trial whose result is fair or reliable. Lockhart v. Fretwell, 113 S.Ct. 838, 842 (1993). The analysis focuses on the fundamental fairness of the result, not on mere outcome. Id. A conviction is not set aside solely because the outcome would have been different but for counsel's error. Id. at 842-43.
There is no reason for a court to address both the performance and the prejudice components if the defendant makes an insufficient showing on one. See Strickland, 104 S.Ct. at 2069. "In particular, a court need not determine whether counsel's performance was deficient before examining the prejudice suffered by the defendant as a result of the alleged deficiencies." Id. If it is easier to dispose of the claim because of a lack of sufficient prejudice, that course should be followed. Id.
1. Failure to investigate and present a defense
The movants contend that each of their counsel was ineffective in failing to put on a meaningful defense. They provide the following summary of events after the prosecution had rested right before lunch: During lunch, the defense attorneys were elated. They commented that in all their years of practicing law they had never seen any other case which was in as good a position as this case was when the prosecution rested. None of the attorneys had ever see a case where one of the prosecutors' main witnesses had broken down on the stand and admitted that he had committed perjury. They all said the prosecutors had not presented sufficient evidence to prove any violation. They all agreed there was no need to present a defense. Defendants were ahead. This all occurred during the lunch break. There was no review and analysis of the evidence that had been presented by the prosecution or of the evidence which defendants might present. There was no discussion of what the jury might have perceived from the prosecution's presentation. There was no discussion of the pros and cons of offering the testimony of the expert witness who was waiting and ready to testify that everything he had reviewed indicated defendants had performed correctly. Nor did the attorneys weigh the value of offering the testimony of any of the other witnesses. The lawyers agreed that there was a good possibility that Judge Sear would dismiss the case. They noted that he seemed convinced that there had been no proof of any violation. Judge Sear had, however, asked one question during the trial which the attorneys felt needed to be answered. They decided to call John O'Brien as a witness to answer that one question. There was no discussion of what the jury would think if the defense did not present a full and strong defense. They did not consider whether the jury might conclude that calling only one witness, a defendant, meant the defense had no other evidence.
The attorneys present at a luncheon meeting were Richard Simmons, Jr., John Martzell, Bruce Ashley II, and James McPherson. See O'Keefe's exh. C (Affidavit of Eileen O'Brien).
Also during lunch, co-defendant Gary Bennett expressed his desire to take the stand in order to testify that he had done nothing wrong. Bennett said he felt that if he did not do so the jury would interpret his failure to testify as an admission of guilt. There was no consideration given to what Bennett might offer as testimony, what its value would be to the defense, how it might be perceived by the jury, or how his not testifying would appear to the jury. The lawyers just said, "We're ahead; it's not necessary to put on a defense. When you are ahead, you quit." During the lunch break, the fairly large group ate lunch in a loose fashion. There was no orderly review of the prosecution's case or on the defense that could be offered. Without any analysis of the situation, the defense attorneys decided that they were ahead and that a defense was unnecessary.
When the trial resumed, the defense put John O'Brien on the stand to answer the question for Judge Sear. In addition, a videotape was played of the deposition of Mr. North who was on the Board of the company managed by government witness Donaldson.
O'Keefe's Memorandum at 121-23.
"[S]trategic choices made after thorough investigation of law and facts relevant to plausible options are virtually unchallengeable, and strategic choices made after less than complete investigation are reasonable precisely to the extent that reasonable professional judgments support the limitations on investigation." Strickland at 2066. "A decision regarding trial tactics cannot be the basis for a claim of ineffective assistance of counsel unless counsel's tactics are shown to be 'so ill chosen that it permeates the entire trial with obvious unfairness.'" Teague v. Scott, 60 F.3d 1167, 1172 (5th Cir. 1995) (quoting Garland v. Maggio, 717 F.2d 199, 206 (5th Cir. 1983)). "So long as counsel made an adequate investigation, any strategic decisions made as a result of that investigation fall within the wide range of objectively reasonable professional assistance." Smith v. Cockrell, 311 F.3d 661, 668 (5th Cir. 2002).
The movants' defense team was composed of experienced criminal defense attorneys, and the record is replete with motions made in an aggressive defense of their clients. After discussing plausible options, the defense team made the tactical decision to concentrate on the credibility of Donaldson and Moore and to call O'Brien to the stand to answer questions that arose during the trial. The absence of a motion for a mistrial, in view of the comments made by Judge Sear that led counsel to opine that he may have dismissed the case, supports the defense team's belief that their strategic choice would result in an acquittal. The movants have not overcome the presumption that the action was sound trial strategy; therefore, they have not satisfied the performance prong of the Strickland test.
In addition, the defendants placed more than thirty exhibits into evidence.
2. Failure to raise lack of fiduciary duty defense on behalf of Bennett and O'Brien
O'Brien, on behalf of himself and the other movants, contends that counsel was ineffective in failing to raise the "lack of fiduciary duty defense" to the mail fraud counts of the superseding indictment. O'Brien argues that he and Bennett did not owe a fiduciary duty to PNRRG and that non-disclosure, absent a duty to disclose, could not be a basis for liability under the mail fraud statute.
O'Brien has not demonstrated deficient performance and prejudice. The case did not involve a breach of a duty to disclose, but a scheme to defraud. Specifically, Judge Sear held that "[t]he scheme charged in the indictment and of which the defendants were convicted relates to the defendants' management of the liquidated assets of PNRRG." See United States v. Michael O'Keefe, No. 95-0106, Minute Entry at 4, August 15, 1996 (Sear, J.). "By mid- to late-summer 1991, liquidation appeared imminent and defendants O'Keefe, Schmidt, Bennett, and O'Brien began promoting the reinsurance plan in earnest." Id. at 6. "On November 12, 1991, the Nineteenth Judicial District Court for East Baton Rouge Parish, Louisiana, signed an order placing PNRRG in liquidation. In conjunction with the reinsurance agreement and liquidation, approximately $10 million in cash was transferred to the O'Keefe trust account. It is the defendants' management of these funds that was at issue in these proceedings." Id. at 9. Judge Sear held that the evidence was sufficient to support a finding by a reasonable jury that O'Keefe, Schmidt, O'Brien, and Bennett entered into a scheme or artifice to defraud as described in the indictment. The Court of Appeals affirmed the convictions, stating that "a reasonable jury could have found that the defendants created a false impression that Sphere Drake was covering the risks when, in fact, the contract was canceled and the defendants received substantial profits realized by the cancellation." Further, "[t]he defendants failed to maintain coverage and pay claims for the insured physicians as promised, and misrepresented that certain claims would be the reinsurers' responsibility."
The Court of Appeals rejected O'Keefe's argument under Neder v. United States, 119 S.Ct. 1827 (1999) that the evidence was insufficient to establish that defendants made material misrepresentations and omissions as follows:
To this end, defendants misrepresented or failed to disclose material facts discussed above. For example, they misrepresented that coverage of PNRRG's physicians would continue and that all claims would be paid by [Builders and Contractors], misrepresented that they would not personally profit from the transactions, failed to disclose that they had canceled excess coverage, and failed to disclose their plan to transfer millions of dollars intended to capitalize the new insurance venture to their personal bank accounts. . . . DOI actuary, Scruggs, testified that if the DOI had known that the defendants were going to cancel doctors' coverage, it would not have entered into the reinsurance agreement with defendants and would have saved $8 million for the company in liquidation. We think these misrepresentations and nondisclosures were certainly capable of influencing the PNRRG board and the DOI.
Michael Scruggs was an employee in the actuarial department of KPMG, the accounting firm hired by the Department of Insurance to perform a financial examination of PNRRG in 1989.
Accordingly, the movants have not shown that counsel was ineffective in failing to raise a lack of fiduciary duty defense that was not supported by the facts of the case.
3. Uncalled witnesses
The movants contend that counsel should have called the following witnesses who could have explained to the jury the exact nature of the transactions: Bruce W. Foudree, an insurance expert, and various witnesses to explain the original plan of acquiring the Charleston Insurance Company, L.D. Barringer, a partner in Heritage Management, which served as the deputy conservator; and Bennett. In addition, O'Brien argues that counsel should have called Daryl Cobb, Michael Mabry, PNRRG Board members, Michael Scruggs, Julian Griffiths, Joseph Petrelli, Paula Douglas, Michael Johnston, Matt Quay, Susan West, Dick Clayton, and Art Owens to present a materiality defense challenging the Government's case regarding profits, the commutation of Sphere Drake, the rejection of claims, and the cancellation of policies.
"[C]omplaints of uncalled witness are not favored, because the presentation of testimonial evidence is a matter of trial strategy," and counsel is entitled to a presumption that his performance was adequate. Wilkerson v. Cain, 233 F.3d 886, 892-93 (5th Cir. 2000). To demonstrate Strickland prejudice based on counsel's failure to call witnesses, the movants "must show not only that [the] testimony would have been favorable, but also that the witness would have testified at trial." Evans v. Cockrell, 285 F.3d 370, 377 (5th Cir. 2002).
The movants contend that Charles Clause, President of Niagara Insurance Exchange and the owner of Charleston Insurance Company; Ed Yablecki, Vice-president of Niagara; Julian Griffiths, reinsurance broker; Michael Johnston, Underwriting manager of Physicians National; Cecil Dunn, an attorney for Medical Indemnity Risk Retention Association in the acquisition efforts; John Bondurant, Kentucky Department of Insurance; Wendell Dark, Kentucky Department of Insurance; and Roland Crawford, South Carolina Department of Insurance, could have provided evidence that there was a binding offer to purchase Charleston Insurance Company. This testimony would have undermined the government's allegations of fraud by showing that the movants intended that Charleston Insurance Company would write the business previously underwritten by PNRRG and that Builders and Contractors was a "last minute stop-gap reinsurer" due to the failure to acquire the Charleston Insurance Company when the Department of Insurance of Kentucky did not approve the sale.
The movants contend that Foudree would have testified concerning the purpose of the reinsurance agreement between Physicians Risk Retention Group (PNRRG) and Builders and Contractor's Insurance Company, the reinsurer. The movants argue that they suffered prejudice because Foudree would have explained to the jury that it was expected that they would make a profit and, further, that the profits were not a result of the fraudulent cancellation of the contract with Sphere Drake, the cancellation of coverage for physicians, or their fraudulent refusal to pay claims. They argue that Foudree would have testified that insurance companies typically insure only policies they feel they can make money on and that it is common practice to have a trust account in the United States to ensure payment of claims when the reinsurer is located outside the United States.
The expert report of Bruce Foudree focused on the risks that the reinsurer agreed to undertake. See O'Keefe's exh. D. He opined that the reinsurer had a right to decrease loss reserves when it determined that the reserves were excessive. Foudree reviewed 30 claims that were in dispute and concluded that there was a reasonable basis for denying coverage because the reinsurer did not agree to provide insurance for the specific claims, which were the responsibility of PNRRG.
The movants argue that Barringer's testimony could have created a reasonable doubt as to many of the prosecution's allegations. They contend that Barringer could have called into question Moore's belief that O'Keefe had authority over the funds, the question of the rightful owner of the funds, the allegation that the Sphere Drake coverage was surreptitiously canceled, and the defendants' intention to make a profit from their involvement in the contract. Further, Julian Griffiths, the reinsurance broker for the contract with Sphere Drake, and Joseph Petrelli, an actuary, would have testified that it was not improper to commute the Sphere Drake contract.
These arguments, now raised in the context of ineffective-assistance-of-counsel, were raised in the defendants' Rule 33 motion for a new trial based on newly discovered evidence. The court held that there was no merit to the claims, and the Court of Appeals affirmed the findings and conclusions of the court.
The movants contend that Bennett would have testified that he contacted Donaldson when the Louisiana Department of Insurance determined that they wanted to reinsure the remaining PNRRG doctors. Donaldson informed Bennett that he would require a brokerage fee of $150,000 if he could convince Builders and Contractors to handle the reinsurance. The movants contend that Bennett's testimony would have shown the fallacy in the government's contention that the defendants planned the scheme and enlisted Donaldson's help to carry it out. Bennett and O'Brien discovered that the reinsurance transaction was not disclosed in the Builders and Contractors financial statement and asked that it be brought to the attention of Price Waterhouse. Bennett would have testified that he and O'Brien then flew to Vienna, Austria, to meet with Mr. Kisler, to discuss the terms of the reinsurance contract.
Defendants contend further that Bennett would have testified that, when the defendants became aware of the allegation that Donaldson had no authority to enter a contract on behalf of Builders and Contractors, Donaldson replied that the minutes of a Board of Directors meeting reflected that he had been given authority. Bennett would have testified that they continued to do business with Donaldson because they believed that he had the authority to enter the reinsurance agreement.
Moreover, Bennett would have testified that Donaldson lied about a conference call with Moore and representatives of the Department of Insurance that occurred in O'Keefe's office. Bennett would have testified that there was a "speakerphone" conference call with Moore, Donaldson was present and involved, and Donaldson talked to Moore for several minutes about the negotiations between PNRRG and Builders and Contractors. Through his testimony, Bennett would have brought out the additional lies in Donaldson's testimony to the grand jury and at trial.
Further, the movants contend that Bennett would have clarified that it was never intended that the defendants would not profit from the reinsurance agreement, and would affirm that the only time that there would be no profit was when the new insurance entity was set up in the future because it would be owned by the doctors as a non-profit insurance company.
The movants have not overcome the presumption that the defense team's decision to omit the testimony of these witnesses was not a matter of sound trial strategy, and therefore have not established deficient performance.
In a separate argument, Bennett asserts that counsel was ineffective in refusing his request to put on a defense and permit him to testify. He argues that counsel took a "second seat" and allowed O'Keefe's attorneys to take the lead in the case. Bennett contends that, despite his direct instruction to allow him to testify, counsel refused. Bennett argues that, if he had been allowed to testify, he would have expressed his view of the events and the conduct in question.
Considering O'Brien's testimony, Bennett cannot show prejudice in his failure to testify. Counsel made the decision that O'Brien would testify concerning the defendant's version of the transaction as a legitimate business deal. Tr. Vol. 11. Bennett has not alleged how his view of the events would have been different or more favorable than O'Brien's testimony.
During questioning by his attorney, Bruce Ashley, O'Brien testified concerning the management agreement between Associated Insurance Consultants, Inc. (AIC) and Builders and Contractors, and the commutation of the Sphere Drake contract because it was too expensive for coverage that would never pay a claim. O'Brien also explained why some of the doctors' coverage was cancelled and explained that none of the doctors "went without coverage." The intent was to create a medical malpractice pool to be owned by the physicians. Efforts were made to bring approximately 400 remaining physicians into the new entity, Physicians Medical Indemnity Association (PMIA). Approximately 100 doctors were cancelled; but some already had coverage, and others were placed with various insurance companies. Three hundred doctors elected to join the PMIA, and their unearned and earned premium for the period that they were under the Builders and Contractors contract were moved to the PMIA. The PMIA ultimately was liquidated, and the monies were transferred to the Louisiana Department of Insurance.
O'Brien also explained why the money had flowed from the trust in Louisiana to the Bahamas and back to Louisiana. O'Brien testified that there was no mechanism by which money owed to Builders and Contractors could be transferred from the trust to AIC; therefore, it had to be sent to Builders and Contractors under the management contract through its agent, Captive Managers, in the Bahamas and then to AIC. Under the agreement with Builders and Contractors, AIC would receive the majority of profits because it performed all of the work. O'Brien testified that the intent was that Builders and Contractors hold the contract for only two or three months. He stated that AIC made several unsuccessful attempts to purchase Builders and Contractors.
John R. Martzell, attorney for Eric Schmidt, questioned O'Brien about his role as a member of the Board of PNRRG in attempting to rehabilitate PNRRG in 1991. O'Brien testified that he helped the auditors to determine the financial condition, consolidated operations, implemented new systems, and re-underwrote the entire book of business. O'Brien explained that physicians were cancelled to eliminate poor risks, but some were canceled when insurance agents moved their insureds to other companies. According to O'Brien, these cancellations were different from the April 1992 cancellations, which occurred in order to roll the physicians into a new program.
O'Brien testified that, at the end of the first year of the reinsurance contract between PNRRG and Builders and Contractors, there was a profit in excess of $5,000,000. O'Brien testified that the contracts were drafted in such a way that the book of business could easily be moved from Builders and Contractors to a new entity within a few months, while providing Builders and Contractors with a fee for the period that they actually held the business. The profits to AIC were distributed to Schmidt, Bennett, and O'Brien as the owners of AIC because AIC was an "S" corporation, and the income was taxable to its owners. O'Brien testified that the vast majority of the money paid to the owners was then used to form another insurance company, Lemé Reinsurance Limited, which was licensed in 1992, to replace Builders and Contractors.
In reviewing the sufficiency of the evidence to support the conviction, Judge Sear stated that "a reasonable jury could have rejected O'Brien's testimony in view of other evidence that showed that there was no legitimate explanation for the diversion and that it was the defendants who drafted the contract requiring the transfers." Minute Entry, August 15, 1996 at 35. In its review of the evidence, the Court of Appeals considered and rejected Bennett's version of events that Builders and Contractors "was intended to serve only as a temporary place to 'park' the insurance policies of the low risk doctors until a permanent American company could be found." Further, the Court of Appeals concluded that the defendants received a large profit because the anticipated claims were higher than the actual claims; that Moore was a thief who stole money and testified for a reduction in sentence; and that Donaldson lied when he was caught misrepresenting his authority to act for Builders and Contractors.
Judge Sear granted the motion for a new trial, and the Court of Appeals reversed and reinstated the convictions. In reversing the grant of a new trial, the Court of Appeals noted that, once Donaldson's falsehoods emerged, "the defense had total leeway in cross-examining Donaldson and used the information provided by the prosecution to powerful effect." 128 F.3d at 896. The Court of Appeals added that "[a] review of the cross-examination . . . gives little doubt that the defense ably exploited the FBI 302 report that the government provided to the defense prior to Donaldson's direct testimony and which provided the basis for the defense's devastating cross-examination of Donaldson." Id.
In affirming the convictions, the Court of Appeals found "that the falsehoods were sufficiently exposed before the jury to enable the jury to weigh those falsehoods in its deliberations" and "to adequately perform their fact-finding function and to maintain the level playing field between the prosecution and the defense." Id. A rational jury could conclude that Moore was "bribed or at least encouraged by O'Keefe to raid his trust account."
Accordingly, the movants have not demonstrated that they were deprived of their Sixth Amendment right of effective assistance of counsel by counsel's decision not to call additional witnesses.
4. Failure to challenge the indictment
O'Brien contends that counsel failed to challenge the indictment in the district court and on appeal. O'Brien sets forth no argument to support deficient performance and prejudice under the Strickland standard. Instead, he refers the court to his arguments that the indictment was defective because of the grand jury perjuries of Donaldson and Moore and because the indictment did not contain the element of materiality of the falsehood in charging him with mail fraud. Accordingly, he has not overcome the presumption that counsel rendered adequate assistance. Further, the challenges to the indictment are not cognizable in this § 2255 motion because O'Brien has not made a showing of exceptional circumstances. See United States v. Dyer, 136 F.3d at 425.
5. Failure to obtain severance from O'Keefe
The movants assert that counsel was ineffective in not obtaining severance of the trials of O'Keefe and the other four defendants. Bennett contends that Senator O'Keefe was a prominent politician with a prior felony conviction and that the jurors attributed all of O'Keefe's conduct to the remaining four defendants. Bennett argues that he raised the issue with his counsel, but counsel took the approach of permitting the other attorneys to prepare for trial.
"The rule, rather than the exception, is that persons indicted together should be tried together, especially in conspiracy cases." United States v. Pofahl, 990 F.2d 1456, 1483 (5th Cir. 1993). "[A] quantitative disparity in the evidence is clearly insufficient in itself to justify severance," and "the mere presence of a spillover effect does not ordinarily warrant severance." Id.
Codefendant Schmidt filed and renewed motions for severance. Judge Sear denied the motions, and the Court of Appeals affirmed the denial. The Court of Appeals reasoned that the jury was given the standard instruction to consider separately each count and the evidence as to each defendant. Because all of the defendants in this case were acquitted on one or more counts, the Court of Appeals found that there is an inference that the jury "sorted through the evidence and considered each defendant and each count separately." United States v. Ellender, 947 F.2d 748, 755 (5th Cir. 1991). The movants do not allege facts or arguments particular to their cases that would have warranted a different result had they urged separate motions to sever. Accordingly, they have not shown that they were prejudiced by counsel's failure to raise the issue of severance as to each defendant.
6. Counsel's failure to raise meritorious issues on appeal
A claim of ineffective assistance of appellate counsel is also governed by the Strickland standard. U.S. v. Merida, 985 F.2d 198, 202 (5th Cir. 1993). However, it is difficult to demonstrate that counsel was incompetent for failing to raise a particular claim on appeal. See Smith v. Robbins, 120 S.Ct. 746, 765 (2000). Appellate counsel need not "raise every nonfrivolous issue requested by the client . . . if counsel, as a matter of professional judgment, decides not to present those points." Jones v. Barnes, 103 S.Ct. 3308, 3312 (1983). The decision to focus on the stronger arguments on appeal belongs to counsel, and reasonable professional judgments should not be second-guessed. Id. at 3312-13. "Generally, only when ignored issues are clearly stronger than those presented, will the presumption of effective assistance of counsel be overcome."Smith, 120 S.Ct. at 765. (internal quotation and citation omitted).
a. Challenge to denial of motion to continue
The movants contend that counsel was ineffective in failing to challenge on direct appeal Judge Sear's refusal to grant a continuance. Although the movants present arguments to support their claim that a continuance should have been granted, these arguments are not properly before this court. The arguments do not identify how counsel's performance was deficient or how they were prejudiced by counsel's failure to raise the issue on appeal. Their conclusory allegations are inadequate to support their claim of a Sixth Amendment violation. See United States v. Flores, 135 F.3d 1000, 1006 (5th Cir. 1998).
b. Challenge to assessment of full restitution
Bennett asserts that counsel was ineffective in failing to object to the assessment of full restitution and to raise the issue on direct appeal. He contends that, at the time of sentencing, he had a minimal net worth and a negative monthly cash flow and was unemployed. Bennett argues that a restitution order in the amount of $1,174,849 is improper because there is no hope that he can pay such an amount after his release from prison.
Bennett's arguments do not address the two prongs of theStrickland test, but focus on his inability to pay the restitution order. Bennett cannot show that counsel's performance was deficient in failing to raise the issue of restitution on appeal. "Restitution is limited to losses caused by the specific conduct that is the basis of the offense of conviction." Ratliff v. United States, 999 F.2d 1023, 1026 (6th Cir. 1993). At sentencing, counsel filed thirteen objections to the presentence report that were common to all of the defendants, in addition to the objection that was particular to Bennett. In objection number six, the defendants objected to the amount of loss, and the court sustained the objection in part. The court excluded the following amounts as a basis for determining the value of the funds for which the defendants would be held responsible: The Towers Note, $3,500,000; the Bank of Louisiana Debenture, $150,000; the money in Lloyds, LEME and AFC, $4,090,992; premiums returned to doctors, $1,438,445; claims paid, $665,000; and Sphere Drake payment of $375,000. The total amount of loss was reduced to $4,699,396, and restitution in the amount of $1,174,849 was imposed on each of four defendants, O'Keefe, O'Brien, Schmidt, and Bennett. In view of the many issues put forth by counsel on appeal and in various post trial motions, counsel's professional judgment that this issue was not as strong as others should not be second-guessed.
On direct appeal, the government cross-appealed the sentencing court's reduction of the loss calculation. The Court of Appeals held that there was no error in the court's finding that the physicians who were exposed to medical malpractice claims were the victims, not their patients. Further, the Court of Appeals upheld the exclusion of about $4,000,000 that defendants invested in other insurance companies from the calculation of restitution.
7. Conflict of interest
Bennett and O'Brien contend that they was denied their rights to effective assistance of counsel because their attorney, Bruce Ashley, labored under a conflict of interest when he represented both Bennett and O'Brien at trial.
At sentencing, Bennett was represented by Bruce Kirwan.
Rule 44(c) of the Federal Rules of Criminal Procedure provides:
(c) Inquiry Into Joint Representation.
(1) Joint Representation. Joint representation occurs when:
. . . .
(B) the defendants are represented by the same counsel, or counsel who are associated in law practice.
(2) Court's Responsibilities in Cases of Joint Representation. The court must promptly inquire about the propriety of joint representation and must personally advise each defendant of the right to the effective assistance of counsel, including separate representation. Unless there is good cause to believe that no conflict of interest is likely to arise, the court must take appropriate measures to protect each defendant's right to counsel.
Bennett and O'Brien concede that Judge Sear called both defendants into his chambers without counsel to explain the conflict of interest. He then appointed a Federal Public Defender for each defendant to review the indictment and to determine if each defendant understood the nature of the charges, the statutory offenses included within the charges, the range of punishment, any possible defenses to the charges, factors that would contribute to mitigation, and other facts essential to a broad understanding of the matter. After the discussions, Bennett and O'Brien did not object to the joint representation. The Federal Public Defender from the Southern District of Ohio, who met with Bennett, submitted a report of that meeting, in which he stated in relevant part:
Counsel and Mr. Bennett discussed the problems that may arise with joint representation. He was informed of his right to have his own attorney and the inherent problems of joint representation. We thoroughly discussed the potential conflicts that can arise when one attorney represents more than one party in an action. Mr. Bennett informed counsel several days later he wishes to proceed with Mr. Ashley's representation.
Tr. R., doc. #86.
Although the discussion is not part of the record, the circumstances indicate that Judge Sear complied both with Rule 44(c) and United States v. Garcia, 517 F.2d 272 (5th Cir. 1972).
In Garcia, the Court of Appeals set forth the following procedure to determine whether the defendants have waived any conflict of interest:
[T]he district court should address each defendant personally and forthrightly advise him of the potential dangers of representation by counsel with a conflict of interest. The defendant must be at liberty to question the district court as to the nature and consequences of his legal representation. Most significantly, the court should seek to elicit a narrative response from each defendant that he has been advised of his right to effective representation, that he understands the details of his attorney's possible conflict of interest and the potential perils of such a conflict, that he has discussed the matter with his attorney or if he wishes with outside counsel, and that he voluntarily waives his Sixth Amendment protections.Id. at 278.
"[J]oint representation is not unconstitutional per se," and a defendant must demonstrate an actual conflict of interest that deprived him of his Sixth Amendment right. Id. In order to prevail on the ineffective assistance of counsel claim, Bennett and O'Brien "must show that [their] trial attorney was acting under the influence of an actual conflict of interest that adversely affected his performance at trial." United States v. Infante, 2005 WL 639619 at *10 (5th Cir. March 21, 2005) (citingCuyler v. Sullivan, 100 S.Ct. 1708, 1718 (1980)). "[They] need not show prejudice in the sense that the outcome of the proceeding would have been different if it were not for [the] attorney's conflict of interest." Id. "A conflict of interest exists when defense counsel places himself in a position conducive to divided loyalties." Id. (internal quotation and citation omitted). "An adverse effect on counsel's performance may be shown with evidence that counsel's judgment was actually fettered by concern over the effect of certain trial decisions on other clients." Id. at *11. "[U]ntil a defendant shows that his counsel actively represented conflicting interests, he has not established the constitutional predicate for his claim of ineffective assistance." Cuyler, 100 S.Ct. at 1719.
Bennett argues that Ashley could not effectively represent him because all decisions were viewed in light of their effect on both clients. As an example, Bennett contends that one client could not "potentially" cooperate with the government with the assistance of his counsel because such cooperation might adversely affect the other client. However, Bennett's example is merely a theoretical, not an actual conflict, because he does not assert that he ever considered cooperating with the government, but only refers to a "potential desire by one client to cooperate with the Government."
Memorandum of Bennett, Doc. #706, p. 9.
Bennett and O'Brien do not allege that either stood to gain significantly or that either defendant had his cause damaged by any evidence or argument that was not put forth because of the joint representation. At trial, the defendants presented a united front that there was no fraudulent scheme to steal the assets of PNRRG. The defendants were represented by experienced counsel who acted as a team and made strategic choices concerning the defense that would be presented to the jury.
Accordingly, Bennett and O'Brien have not shown that counsel actively represented conflicting interests, and therefore have not established the constitutional predicate for a Sixth Amendment claim.
C. Bennett's motion for additional discovery
Bennett moves for discovery of the following additional documentary evidence: Federal Bureau of Investigation (FBI) interview notes for Gene Broussard and L.D. Barringer and any raw data related to this case and maintained on the FBI's field office computer network known as the I-drive.
Discovery is available in a § 2255 motion if, in the discretion of the court, good cause is shown. United States v. Webster, 392 F.3d 787, 801 (5th Cir. 2004). Conclusory allegations are insufficient to warrant discovery. Id. at 802. The movant must set forth specific allegations of a factual dispute, which would entitle him to relief if resolved in his favor. Id.
Bennett has not set forth the basis for his request or the factual dispute that may be resolved by the production of these documents. Moreover, at the evidentiary hearing on the Rule 33 motion for a new trial, the court required the government to produce FBI and state files related to interviews in this case, and personally examined those files. All relevant documents were provided to the defendants, and time was allotted for their review. Bennett's specific request for the FBI's I-drive could have been made in the context of the Rule 33 motion Accordingly, the motion for additional discovery is denied.
III. CONCLUSION
Accordingly, the motions to vacate, set aside, or correct sentence, pursuant to 28 U.S.C. § 2255 of Michael O'Keefe, Sr., John O'Brien, Eric Schmidt, and Gary Bennett are denied. Bennett's Motion for Additional Discovery is denied.