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U.S. v. STEWART

June 7, 2001

UNITED STATES OF AMERICA
V.
ALLEN W. STEWART



The opinion of the court was delivered by: Bartle, J.

  MEMORANDUM

Before the court is the motion of Allen W. Stewart ("Stewart") under 28 U.S.C. § 2255 to vacate, set aside, or correct sentence.

Stewart was convicted by a jury in December, 1997 of 135 counts of violating the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., as well as federal mail fraud, wire fraud, and money laundering statutes. 18 U.S.C. § 1341, 1343, 1957. The charges arose out of Stewart's involvement in a complex scheme to loot Summit National Life Insurance Company ("Summit") and Equitable Beneficial Life Insurance Company ("EBL"). The jury also determined that certain of Stewart's assets were subject to forfeiture under the RICO and money laundering laws. On August 13, 1998 Stewart was sentenced to 15 years imprisonment, and an order of restitution in the amount of $60.1 million was entered against him. His conviction and sentence were subsequently affirmed by the Court of Appeals, United States v. Stewart, 185 F.3d 112 (3d Cir. 1999), and the Supreme Court thereafter denied certiorari. Stewart v. United States, 528 U.S. 1063 (1999).

I.

Stewart's timely collateral attack first challenges his convictions for mail fraud under 18 U.S.C. § 1341*fn1 and wire fraud under 18 U.S.C. § 1343.*fn2 To support his argument that these convictions must be vacated, Stewart relies on Cleveland v. United States, 531 U.S. 12, 121 S.Ct. 365 (2000), decided after the Supreme Court denied certiorari in this case, and thus after his conviction became final. Cleveland held that licenses issued by states are not property within the meaning of the federal mail fraud statute.*fn3 Since the mail fraud statute "requires the object of the fraud to be `property' in the victim's hands," the Court concluded that the use of fraud to obtain a state license does not fall within the ambit of § 1341. Id. at 374. Thus, even though "licensees may have property interests in their licenses," using a scheme or artifice to defraud in order to obtain a license from a state regulator does not constitute a violation of § 1341. Id.

Before turning to the merits of Stewart's Cleveland argument, we must decide whether his claim is procedurally defaulted.*fn4 While Stewart raised the issue of licenses not constituting property under the mail and wire fraud statutes prior to trial and in his certiorari petition, he did not assert it during his direct appeal. The Supreme Court most recently addressed procedural default in Bousley v. United States, 523 U.S. 622 (1998). See also United States v. Frady, 456 U.S. 152, 167 (1982). Bousley made clear that the procedural default rule applies to claims arising under decisions like Cleveland which hold "that a substantive federal criminal statute does not reach certain conduct." Id. at 620. If such a claim has been procedurally defaulted because it was not raised on direct review, "the claim may be raised in habeas only if the defendant can first demonstrate either `cause' and actual `prejudice,' or that he is `actually innocent.'" Id. at 622 (citations omitted).

"Cause" for failing to raise a claim exists if the claim had "no reasonable basis in existing law." Reed v. Ross, 468 U.S. 1, 15 (1984). In other words, a defendant may demonstrate "cause" for his procedural default if an issue was "so novel that its legal basis [was] not reasonably available to counsel." Id. Stewart's Cleveland claim is not "so novel" as to constitute cause. See Bousley, 523 U.S. at 622. At the time of Stewart's trial and appeal the question whether licenses were property under § 1341 was a hotly contested issue subject to great debate in the lower courts. Many circuits had already reached the conclusion licenses were not property for purposes of the mail fraud statute. See United States v. Shotts, 145 F.3d 1289, 1296 (11th Cir. 1998); United States v. Schwartz, 924 F.2d 410, 418 (2d Cir. 1991); United States v. Granberry, 908 F.2d 278, 280 (8th Cir. 1990); Toulabi v. United States, 875 F.2d 122, 125 (7th Cir. 1989); United States v. Dadanian, 856 F.2d 1391, 1392 (9th Cir. 1988); United States v. Murphy, 836 F.2d 248, 254 (6th Cir. 1988). Several circuits, including our Court of Appeals, had made the opposite determination. See United States v. Salvatore, 110 F.3d 1131, 1138 (5th Cir. 1997); United States v. Bucuvalas, 970 F.2d 937, 945 (1st Cir. 1992); United States v. Martinez, 905 F.2d 709, 715 (3d Cir. 1990). Clearly then, the basis of the claim was not novel at the time of Stewart's direct appeal.

Stewart notes that it was because of the binding authority of the Third Circuit's decision in Martinez that he did not raise the license issue on direct appeal. In other words, he contends it would have been futile for him to do so. The Supreme Court has explicitly stated that this position is unavailing because "futility cannot constitute cause if it means simply that a claim was unacceptable to that particular court at that particular time." Bousley, 523 U.S. at 623 (quoting Engle v. Isaac, 456 U.S. 107, 130 n. 35 (1982)). Since "a § 2255 movant cannot show `cause' for failing to make . . . [an] argument on direct appeal by demonstrating that circuit law at the time would have made any such argument futile," Stewart has no "cause" for his default. United States v. Ramos, 147 F.3d 281, 287 (3d Cir. 1998).

Stewart also argues that his counsel was ineffective for failing to raise the Cleveland issue on appeal. "It is now well-established that a successful claim of ineffective assistance of counsel under Strickland v. Washington, 466 U.S. 668, . . . satisfies the `cause' prong of a procedural default inquiry." United States v. Garth, 188 F.3d 99, 107 (3d Cir. 1999). In order to establish a claim of ineffective assistance of counsel under Strickland that rises to the level of constitutional error, a petitioner must prove: (1) counsel's performance "fell below an objective standard of reasonableness," that is, that he "made errors so serious that counsel was not functioning as the `counsel' guaranteed the defendant by the Sixth Amendment;" and (2) the deficient representation prejudiced petitioner, that is, that "counsel's errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable." Id. at 687-88.

It is well settled that when choosing which issues to raise on appeal, "[a]n exercise of professional judgment is required. Appealing losing issues `runs the risk of burying good arguments . . . in a verbal mound made up of strong and weak contentions.'" Sistrunk v. Vaughn, 96 F.3d 666, 670 (3d Cir. 1996) (quoting Jones v. Barnes, 463 U.S. 745, 753 (1983)). Only in rare cases will failure to raise an issue on appeal constitute ineffective assistance of counsel because the "process of winnowing out weaker arguments on appeal and focusing on those more likely to prevail, far from being evidence of incompetence, is the hallmark of effective appellate advocacy." Smith v. Murray, 477 U.S. 527, 536 (1986) (internal quotations omitted).

Stewart's trial lasted approximately six weeks. Numerous pre-trial, trial, and post-trial motions were made and ruled on by this court. There existed a plethora of issues that could have been appealed. Stewart's counsel chose to pursue 10 issues on appeal in a lengthy 85 page brief. Viewed in light of Third Circuit law at the time, the license issue was weak and unlikely to prevail. See Martinez, 905 F.2d at 715. Thus, the decision not to pursue it clearly "fell within the `wide range of professionally competent assistance' required under the Sixth Amendment to the Federal Constitution." Smith, 477 U.S. at 536 (quoting Strickland, 466 U.S. at 690).

Furthermore, "there is no general duty on the part of defense counsel to anticipate changes in the law," Government of the Virgin Islands v. Forte, 865 F.2d 59, 62 (3d Cir. 1989), and failure to do so does not constitute ineffective assistance of counsel. See Sistrunk, 96 F.3d at 672; Horne v. Trickey, 895 F.2d 497, 500 (8th Cir. 1990). Keeping in mind that "[a] fair assessment of attorney performance requires that every effort be made to eliminate the distorting effects of hindsight," we find that the failure of Stewart's counsel to anticipate the Supreme Court's ruling in Cleveland does not amount to ineffective assistance of counsel and that Stewart has therefore failed to show "cause" for the procedural default. Strickland, 466 U.S. at 688.

The only way which Stewart's lack of "cause" for his procedural default can be excused is if he can establish "actual innocence." Bousley, 523 U.S. at 623. To establish "actual innocence" a defendant must show that "in light of all the evidence, it is more likely than not that no reasonable juror would have convicted him." Id. "Simply stated, `actual innocence' . . . means that the person did not commit the crime." Garth, 188 F.3d at 107 (internal quotations omitted). If a defendant can demonstrate "actual innocence," then the court can consider the merits of the defaulted claim. Id. at 107-08.

Stewart simply cannot take advantage of this exception, reserved for a "fundamental miscarriage of justice." Herrara v. Collins, 506 U.S. 390, 404 (1993). There was overwhelming evidence presented at trial that Stewart devised schemes to defraud people of money and property other than licenses, including premiums from policyholders and customers, dividends, and various types of fees. Furthermore, the jury clearly found that property other than licenses was obtained through his schemes because it returned special verdicts requiring Stewart to forfeit specific amounts of money and pieces of property under the RICO and money laundering forfeiture laws. Given the above, Stewart clearly cannot meet the Bousley standard, which requires him to show that "in light of all the evidence, it is more likely than not that no reasonable juror would have convicted him." 523 U.S. at 623. He has not established that he is "actually innocent" of his mail and wire fraud convictions and has thus procedurally defaulted his Cleveland claim.

II.

Even if we are incorrect that Stewart has procedurally defaulted his Cleveland claim, he cannot succeed on the merits. Stewart argues that he is entitled to relief under Cleveland because the superseding indictment under which he was charged defined property under the mail and wire fraud counts to include licenses among other items. As a result, Stewart maintains his conviction was flawed since licenses are not property under the mail and wire fraud statutes.

Stewart was charged in a lengthy and detailed 157 count superseding indictment.*fn5 Count 1 alleged a RICO violation and charged that Stewart had committed four racketeering acts, or schemes. As recorded on the verdict sheet, the jury found that Stewart committed all four schemes alleged, as well as all of their predicate acts. Racketeering Act No. 1 alleged a scheme to conceal the insolvency of Summit in order to permit Stewart to continue to control and operate it. Act No. 1 cited 17 predicate acts of mail fraud which Stewart allegedly committed.*fn6 Racketeering Act No. 2, which incorporated mail fraud counts 2 through 19 as its predicate racketeering acts, charged a scheme to loot Summit and EBL of their valuable assets. Act No. 3, which incorporated wire fraud counts 24 through 32, alleged a scheme to deceive regulators regarding reinsurance. Finally, Act No. ...


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