The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
TIMOTHY S. DURHAM, )
Petitioner, ) Cause No. 1:17-cv-3590 RLM-DML
v. )
UNITED STATES OF ) ( A r i s ing from 1:11-cr-42(1) JMS-DML)
AMERICA, )
Respondent. )
)
ORDER AND OPINION
On June 20, 2012, a jury found Timothy Durham guilty of conspiracy to
commit wire fraud and securities fraud (Count 1), in violation of 18 U.S.C. § 371;
ten counts of wire fraud (Counts 2–11), in violation of 18 U.S.C. § 1343; and
securities fraud (Count 12), in violation of 15 U.S.C. §§ 78j(b), 78ff; 17 C.F.R. §
240.10b-5. In December 2012, the court imposed an aggregate term of 600
months’ imprisonment, two years of supervised release, $208,830,082.27 in
restitution, and a $1,200 special assessment. The court of appeals vacated Mr.
Durham’s convictions on Counts 2 and 5, affirmed in all other respects, and
remanded for resentencing without Counts 2 and 5. United States v. Durham,
766 F.3d 672 (7th Cir. 2014). At resentencing, the court imposed an aggregate
term of 600 months’ imprisonment, no term of supervised release,
$208,830,082.27 in restitution, and a $1,000 special assessment. After the court
of appeals affirmed the new sentence, United States v. Durham, 630 F. App'x
634 (7th Cir. 2016), and the Supreme Court denied Mr. Durham’s writ of
certiorari, Durham v. U.S., 137 S. Ct. 321 (2016), Mr. Durham filed a timely
petition pursuant to 28 U.S.C. § 2255 asking that his conviction and sentence
be vacated. [Doc. No. 1]. For the reasons that follow, the court dimisses Mr.
Durham’s motion in part and orders an evidentiary hearing on the remaining
grounds.
I. BACKGROUND
In 2001, Timothy Durham and James Cochran bought Fair Finance
Company through a holding company, Fair Holdings. Fair Finance was a
financial services company that bought consumer receivables at a discounted
rate. The company funded these purchases by selling investment certificates to
individuals in Ohio. These certificates functioned much like certificates of
deposits, but they weren’t FDIC insured. When the certificates matured, Fair
Finance sent the holder a check for the interest and the owner had the option to
redeem the certificate, renew it, or, if no action was taken, continue to earn
interest at the previously fixed rate.
Before Mr. Durham and Mr. Cochran purchased Fair Finance, certificates
were limited to $50,000 in value to ensure that the company could redeem
certificates when they matured. After Mr. Durham became CEO, Fair Finance
began to offer certificates for longer terms, higher amounts, and higher interest
rates. Fair Fiance’s outstanding certificate liabilities soon doubled. The company
didn’t use the proceeds from the sale of certificates primarily to purchase
additional consumer receivables; instead, it directed much of the capital to loans
for Mr. Durham, Mr. Cochran, and companies Mr. Durham owned. These loans
were mostly made on exceptionally favorable terms, poorly documented, and
amended periodically to increase the debtors’ borrowing limits. Fair Finance
received few payments on these loans, yet listed them as assets supporting the
sale of certificates.
Fair Finance began to experience financial issues in 2008. The company’s
insufficient funds cause it to fall behind on payments of interest and principal,
but employees told investors that the delays were a result of computer and
banking issues. The FBI eventually began investigating Fair Finance based on
statements by a former Fair board member. After an eight-month investigation,
the FBI obtained authorization to install a wiretap on Mr. Durham’s phone.
Using this wiretap, the FBI recorded phone calls in which Mr. Durham and his
associates discussed how to hide Fair Finance’s financial condition, how some
of their employees could “bust” them, and how to “vaporize” the bad debts from
the company’s disclosures to the Ohio Department of Securities. The FBI then
sought and obtained a search warrant for Fair Finance’s offices. After the seizure
of the company’s computer servers effectively shut the company down, Fair
Finance went into bankruptcy. Some $215 million in claims were filed against
the bankruptcy estate, but the trustee was only able to recover $5.6 million of
assets.
II. DISCUSSION
Mr. Durham’s petition contends that his counsel at different stages of the
proceeding provided him with ineffective assistance of counsel. The rules
governing petitions filed under 28 U.S.C. § 2255 provide that once a motion is
filed:
The motion, together with all the files, records, transcripts, and
correspondence relating to the judgment under attack, shall be
examined promptly by the judge to whom it is assigned. If it plainly
appears from the face of the motion and any annexed exhibits and
the prior proceedings in the case that the movant is not entitled to
relief in the district court, the judge shall make an order for its
summary dismissal and cause the movant to be notified.
Rule 4(b) of the Rules Governing Section 2255 Proceedings for the United States
District Courts. The court has discretion to deny an evidentiary hearing when
the motion, files, and records of the case conclusively show that the prisoner is
not entitled to relief. Cooper v. United States, 378 F.3d 638, 642 (7th Cir. 2004)
(citing United States v. Kovic, 830 F.2d 680 (7th Cir. 1987)). A hearing isn’t
necessary if the petitioner’s allegations are “‘vague, conclusory, or palpably
incredible,’ rather than ‘detailed and specific.’" Martin v. United States, 789 F.3d
703, 706 (7th Cir. 2015) (quoting Kafo v. United States, 467 F.3d 1063, 1067
(7th Cir. 2006)). The allegations contained within a verified motion to vacate,
signed under penalty of perjury, become evidence and “permit the district court
to evaluate properly the movant's allegations and to determine whether a
sufficient threshold showing has been made to warrant further proceedings.”
Kafo v. U,S,, 467 F.3d at 1068.
To prevail on an ineffective assistance of counsel claim, Mr. Durham must
show both that his attorney’s performance “fell below an objective standard of
reasonableness” and that there is a reasonable probability that, but for his
attorney’s errors, the result of the proceeding would have been different.
Strickland v. Washington, 466 U.S. 668, 688-693 (1984). This is a difficult
standard to meet; Mr. Durham must show both “that counsel made errors so
serious that ‘counsel’ was not functioning as the counsel guaranteed the
defendant by the Sixth Amendment” and “that counsel’s errors were so serious
as to deprive [Mr. Durham] of a fair [result].” Strickland v. Washington, 466 U.S.
at 687.
With regard to the performance prong of the Strickland inquiry, there is a
strong presumption that counsel performed effectively. See Berkey v. United
States, 318 F.3d 768, 772 (7th Cir. 2003). “A court’s scrutiny of an attorney’s
performance is ‘highly deferential’ to eliminate as much as possible the distorting
effects of hindsight, and we ‘must indulge a strong presumption that counsel’s
conduct falls within the wide range of reasonable professional assistance.’”
Vinyard v. United States, 804 F.3d at 1225 (quoting Strickland v. Washington,
466 U.S. at 687). Because reviewing courts shouldn’t second-guess counsel’s
strategic choices, the burden of showing that counsel’s decisions fell outside the
wide range of reasonable strategic choices “rest[s] squarely on the defendant.”
Burt v. Titlow, 571 U.S. 12, 22–23 (2013).
If counsel’s performance was deficient, the petitioner must still “show that
‘there is a reasonable probability that, but for counsel’s unprofessional errors,
the result of the proceeding would have been different,’ meaning ‘a probability
sufficient to undermine confidence in the outcome.’” Eckstein v. Kingston, 460
F.3d 844, 848 (7th Cir. 2006) (quoting Strickland v. Washington, 466 U.S. at
694).
Mr. Durham presents 12 grounds for his 28 U.S.C. § 2255 motion to
vacate. The court addresses them as Mr. Durham categorized them.
Ground 1: Trial counsel failed to investigate and subpoena witness pretrial and at
trial
Mr. Durham raises several issues with the performance of John Tompkins,
who represented him at trial. An attorney representing a criminal defendant has
a duty to investigate the prosecution’s case and various defense strategies or to
“make a reasonable decision that makes particular investigations unnecessary.”
Brown v. Sternes, 304 F.3d 677, 691 (7th Cir. 2002) (quoting Kimmelman v.
Morrison, 477 U.S. 365, 384 (1986)). There are some criminal cases in which the
defense strategy won’t be reasonable without consulting with experts or
introducing expert evidence. Thomas v. Clements, 789 F.3d 760, 770 (7th Cir.
2015). An attorney needn’t present each witness which the defendant suggests
to him. United States v. Balzano, 916 F.2d 1273, 1294 (7th Cir. 1990). “Where a
petitioner claims his trial counsel failed to call a witness, he must make a
specific, affirmative showing as to what the missing evidence would have been
and prove that this witness’s testimony would have produced a different result.”
Patel v. United States, 19 F.3d 1231, 1237 (7th Cir. 1994).
Mr. Durham first argues that Mr. Tompkins was unconstitutionally
ineffective because he didn’t properly secure the services of two investment firms,
Stout Risius Ross and Houlihan Valuation Advisors, to serve as experts. Mr.
Durham argues that testimony from Stout Risius Ross and Houlihan would have
shown that his actions were financially reasonable and not fraudulent, but his
speculation about their opinions and testimony isn’t enough to meet his burden
on an ineffective assistance claim. See United States v. Anderson, 61 F.3d 1290,
1298–1299 (7th Cir. 1995). Mr. Durham asserts that both Stout Risius Ross and
Houlihan conducted favorable preliminary financial analyses, but he doesn’t
specify what Stout Risius Ross or Houlihan personnel would have testified to
after a final analysis. Mr. Durham’s assertion doesn’t satisfy his burden since he
can’t specify what the missing evidence would have been and can’t prove that
the testimony would have produced a different result. See Patel v. U.S., 19 F.3d
at 1237.
Mr. Durham next contends that Mr. Tompkins was unconstitutionally
ineffective because he didn’t contract a computer programmer to design and
write a program to open and effectively search the 80 disks and a hard drive the
government provided in discovery. Mr. Durham argues that not hiring a
computer expert allowed Mr. Tompkins to pocket an additional $25,000, but
meant he never opened or reviewed extensive discovery. Mr. Durham describes
in great detail why he thinks Mr. Tompkins’s alleged failure to access and review
digital discovery made his performance deficient, but he doesn’t assert that the
result of the proceedings would have been different had Mr. Tompkins secured
the services of a computer programmer and accessed and reviewed the digital
discovery the government provided. See Eckstein v. Kingston, 460 F.3d 844, 848
(7th Cir. 2006) (quoting Strickland v. Washington, 466 U.S. at 694).
Mr. Durham also argues that Mr. Tompkins was unconstitutionally
ineffective because Mr. Tompkins didn’t cut back on his work load or hire
additional lawyers to work on Mr. Durham’s case. He asserts that only after
much prodding from Mr. Durham did Mr. Tompkins even hire a part-time law
student to assist on the complicated case. Mr. Durham asserts that he and Mr.
Tompkins discussed the need for more lawyers, but he doesn’t specify how he
was prejudiced by the decision to not hire additional lawyers or that additional
lawyers would have produced a different result. Since Mr. Durham didn’t specify
how additional lawyers would have produced a different result, his claim cannot
succeed. See Patel v. United States, 19 F.3d at 1237.
Mr. Durham next contends that Mr. Tompkins was unconstitutionally
ineffective because he didn’t hire a wiretap expert to opine as to whether the FBI
could listen to calls on the line when the Voice Box wiretap software was installed
and before they had received a warrant. Mr. Durham asserts that he identified a
former FBI agent who could review the situation and offer his advice, but Mr.
Tompkins refused to hire the expert. Mr. Durham speculates that this expert
could have been helpful to the defense with respect to his motion to suppress
the wiretap evidence and at the Franks hearing, but he offers no information
about the expert’s testimony or how, specifically, it would have changed the
outcome of the court’s ruling on the motion to suppress. These conclusory
assertions are not sufficient to require an evidentiary hearing. See Martin v.
United States, 789 F.3d at 706.
Mr. Durham next argues that Mr. Tompkins’s performance was
unconstitutionally ineffective because he didn’t call a number of witnesses to
testify on Mr. Durham’s behalf. An attorney needn’t present every witness which
the defendant suggests to him. United States v. Balzano, 916 F.2d 1273, 1294
(7th Cir. 1990). “Where a petitioner claims his trial counsel failed to call a
witness, he must make a specific, affirmative showing as to what the missing
evidence would have been and prove that this witness’s testimony would have
produced a different result.” Patel v. United States, 19 F.3d 1231, 1237 (7th Cir.
1994). Mr. Durham has alleged enough facts about the testimony that would
have been provided by Terry Whitesell, Don Lagrone, Todd Bontrager, Ron
Kaffen, Keith Schaffter, Rusty Riggenbach, Keith Kuczan, Stephany Brogan, Jeff
Birk, Erin Beesley, and Jim Covert that the court can’t conclusively find that he
is not entitled to relief, see Cooper v. United States, 378 F.3d at 642, so the court
will hear evidence on this issue.
Mr. Durham also alleges that Mr. Tompkins failed to properly cross-
examine two government witnesses: Ben Kimmerling and Anthony Schlitche. Mr.
Durham provided sufficiently detailed allegations of what Kimmerling and
Schlitche’s testimony would have been on proper cross-examination and the
effect that testimony would have had to require the court to hold an evidentiary
hearing. See Cooper v. United States, 378 F.3d at 642.
Ground 2: Appellate counsel failed to challenge motion to suppress wiretap based
on lack of probable cause
A different lawyer, James Mutchnik, represented Mr. Durham on appeal,
and Mr. Durham argues that Mr. Mutchnik, too, was unconstitutionally
ineffective because he didn’t argue on appeal that Judge Magnus-Stinson erred
in denying his motion to suppress a wiretap and the evidence gained as a result
of the wiretap. Mr. Durham argued in his suppression motion that FBI Agent
Halliden knowingly and intentionally, or with disregard for the truth, made
material false statements and omissions in the application and affidavit in
support of the application. Judge Magnus-Stinson denied the motion to suppress
after holding a Franks hearing.
Appellate lawyers needn’t present every nonfrivolous claim but are
expected to select the most promising issues for review. Shaw v. Wilson, 721
F.3d 908, 915 (7th Cir. 2013). Appellate counsel’s performance is only deficient
if the counsel “abandoned a nonfrivolous claim that was both ‘obvious’ and
‘clearly stronger’ than the claim that he actually presented” and counsel’s
decision to forego the nonfrivolous claims didn’t “ha[ve] a strategic justification.”
Id. (citing Smith v. Robbins, 528 U.S. 259, 288 (2000)). “This standard is difficult
to meet because the comparative strength of two claims is usually debatable.”
Id.
Mr. Mutchnik appealed on a number of grounds. He challenged the
sufficiency of the evidence on two wire fraud counts, challenged the sufficiency
of the wiretap application, argued that the district court erred in its jury
instructions, and contended the prosecutor committed misconduct. The court of
appeals agreed with Mr. Mutchnik’s argument on the sufficiency of the evidence
on the two challenged wire fraud counts, vacated those counts, and remanded
for resentencing without those counts.
Mr. Durham can’t demonstrate that the suppression issue was clearly
stronger than those presented by Mr. Mutchnik. Mr. Mutchnik pursued two
claims that ultimately succeeded. The claim that the wiretap and derivative
evidence should have been suppressed wasn’t clearly stronger than those two
claims which succeeded or the other claims that didn’t succeed.
Ground 3: Trial counsel failed to call necessary witnesses at Franks hearing
Mr. Durham next argues that Mr. Tompkins’s performance at trial fell
below the constitutional floor when he didn’t call Dan Laikin, CEO of one
Durham-controlled company and a board member of two others, or Mr. Laikin’s
lawyers to testify at the Franks hearing on his motion to suppress the wiretap.
Mr. Durham contends that the testimony of Mr. Laikin or his attorneys would
have demonstrated that Agent Halliden’s statements deliberately false or made
with a reckless disregard for the truth.
Mr. Durham says Mr. Tompkins didn’t call Mr. Laikin because Mr. Laikin’s
lawyers told him that Mr. Laikin planned to invoke his Fifth Amendment right
against self-incrimination (he pleaded guilty to conspiracy to commit securities
fraud just a few years before the hearing). Mr. Durham claims that Mr. Laikin
had no grounds for invoking the Fifth Amendment at the hearing. Mr. Durham
also contends that Mr. Tompkins didn’t call Mr. Laikin’s lawyers because he
believed the communications at the proffer were covered by attorney-client
privilege and argues that Mr. Laikin’s lawyers could have testified about Mr.
Laikin’s statements at his proffer because they weren’t protected by attorney-
client privilege and were admissible under both 804(a) and 807. The court need
not consider whether counsel was deficient if the court finds that the alleged
deficiency did not prejudice the defendant. Richardson v. United States, 379 F.3d
485, 487 (7th Cir. 2004).
Mr. Durham’s allegations don’t demonstrate prejudice to his case. To show
prejudice, Mr. Durham must show that “there is a reasonable probability that,
but for the counsel’s unprofessional errors, the results of the proceeding would
have been different. A reasonable probability is probability sufficient to
undermine confidence in the outcome.” Strickland v. Washington, 466 U.S. at
694. To succeed at the Franks hearing, it isn’t enough to show that an informant
lied to the government officer, who then included those lies in the complaint.
United States v. McAllister, 18 F.3d 1412, 1417 (7th Cir. 1994). Instead, the
evidence must show that the officer submitting the complaint perjured himself
or acted recklessly because he seriously doubted or had obvious reason to doubt
the truth of the allegations. United States v. Jones, 208 F.3d 603, 607 (7th Cir.
2000).
Mr. Durham admits that he doesn’t know how Mr. Laikin or his lawyers
would have testified at the Franks hearing. Mr. Durham states that “[i]t was
obvious that either Laikin lied under oath in his deposition or he lied to Halliden
at the proffer. Alternatively, Halliden lied about what Laikin said at the proffer.”
He cites to Mr. Laikin’s bankruptcy deposition to support his assertion that it is
likely Mr. Laikin’s lawyers would have testified that Agent Halliden
misrepresented Mr. Laikin’s proffer. Two years had passed between the proffer
on March 19, 2009 and the bankruptcy deposition in August of 2011. The
statements to which Mr. Durham cites don’t directly contradict Agent Halliden’s
description of the proffer. In most of the answers Mr. Durham cited, Mr. Laikin
said he didn’t recall. In fact, at the time of the bankruptcy deposition, Mr. Laikin
couldn’t even recall when he had ceased his role as a director of Fair Finance.
Additionally, Mr. Durham asserts that “Laikin had a motive to encourage
Durham’s prosecution and to have Fair destroyed and bankrupt.” Mr. Durham’s
contradictory assertion that either Mr. Laikin lied at the proffer or Agent Halliden
lied in his affidavit is not sufficient to not undermine confidence in the Franks
hearing.
Ground 4: Trial counsel was ineffective regarding search warrant
Mr. Durham also argues that Mr. Tompkins provided unconstitutionally
ineffective assistance of counsel in failing to get the evidence gathered through
search warrants suppressed. The search warrants were based on the same facts
set forth in the wiretap affidavit and portions of calls obtained via the wiretap.
Much of Mr. Durham’s claim in Ground 4 rests upon the same basis as his claim
in Ground 3. As explained as to Ground 3, Mr. Durham can’t show prejudice as
a result of Mr. Tompkins’s failure to call Mr. Laikin or his lawyers.
Mr. Durham also claims that Mr. Tompkins was ineffective for failing to
challenge the search warrant executed at the Fair offices in Ohio. Mr. Durham
doesn’t allege that there were circumstances unique to the Ohio offices that
would have justified suppression of the evidence obtained from them. Since the
arguments raised didn’t prevail as to the Indianapolis search warrant, Mr.
Durham hasn’t provided a basis to believe that he would have prevailed had Mr.
Tompkins properly challenged the Ohio search warrant. Mr. Durham has not
alleged sufficient facts to show prejudice.
Ground 5: Trial counsel was ineffective regarding suppression of wiretap
Mr. Durham maintains that Mr. Tompkins was unconstitutionally
ineffective in his claim to suppress what Mr. Durham thinks was an illegal
wiretap. Mr. Durham first argues that Mr. Tompkins should have hired an expert
in the area of PEN Data and Title III software. Mr. Durham doesn’t allege what
such an expert might have said. He also states that he and Mr. Tompkins agreed
to obtain the original recorded wiretap disk, a CALEA certificate from Verizon,
and an expert to determine whether Verizon customers could be accessed
without the Verizon’s knowledge and consent. Again, Mr. Durham only
speculates as to what information may have been obtained and he can’t show
that Mr. Tompkins’s failings changed the outcome of the proceeding. See Martin
v. United States, 789 F.3d at 706.
Ground 6: Trial counsel and counsel at resentencing were ineffective for failure to
seek recusal of Judge Magnus-Stinson
Mr. Durham claims that his trial was unconstitutionally inadequate for
failing to seek now-Chief Judge Magnus-Stinson’s recusal at trial and
sentencing, and his subsequent counsel was ineffective for failing to seek the
recusal of Judge Magnus-Stinson during resentencing. Mr. Durham laid out an
extensive factual background for his argument that his counsel should have
sought the recusal of Judge Magnus-Stinson. The factual background can be
summarized as follows: (1) that Judge Magnus-Stinson was biased against him
because he, as a major Republican figure in Indiana, was thorn in the side of
Democratic politicians, including Evan Bayh, for whom Judge Magnus-Stinson
worked; (2) Judge Magnus-Stinson was biased against him because of his
antagonistic relationship with her mentor, Robert Wagner; (3) that Judge
Magnus-Stinson had an anti-wealth bias, which she talked about publicly and
during Mr. Durham’s proceedings; (4) that Judge Magnus-Stinson demonstrated
bias in her appointment of CJA counsel for resentencing; and (5) that Judge
Magnus-Stinson showed bias by allowing the SEC to reopen a suit against Mr.
Durham and a co-defendant.
Mr. Durham’s argument regarding his political background can be
summed up as follows: Before becoming a judge, Judge Magnus-Stinson worked
with, and for, several people who are or were quite influential in Indiana
Democratic Party circles. One such person was Evan Bayh, who chose Judge
Magnus-Stinson as counsel when he was governor and appointed Judge
Magnus-Stinson to the Marion County Superior Court. While one of Indiana’s
senators, Senator Bayh endorsed her bid for a magistrate judge position in this
court and recommended that President Obama nominate her for a vacant district
judge position in this court in 2010. Senator Bayh drops out of Mr. Durham’s
narrative at that point, and the narrative suggests no partisan political activity
by Judge Magnus-Stinson after she became a United States District Judge.
Judge-Stinson remained friends with, and retained warm feelings for,
some of those people. Mr. Durham says he’s been active in Indiana Republican
Party activities for several decades as a fund-raiser and donor and as one who
helps anoint candidates behind the scenes. Mr. Durham believes that, during
his involvement in Indiana Republican politics, some of those Democrats have
come to see him as a bitter enemy (none of the Democrats attested to that in Mr.
Durham’s submission, but that’s how he sees things).
Mr. Durham makes a similar argument regarding Judge Magnus-Stinson’s
relationship with attorney Robert Wagner. Mr. Durham states that he had an
antagonistic relationship with Robert Wagner. Mr. Durham argues that because
Judge Magnus-Stinson worked for Mr. Wagner early in her career and described
their relationship as close, she was biased and recusal would have been proper.
Mr. Durham’s argument about Judge Magnus-Stinson’s anti-wealth bias
centers around statements she made during sentencing regarding the people
who Mr. Durham defrauded and how he had spent the money and statements
during an interview in which she talked about valuing frugality.
Mr. Durham alleges that, had Mr. Tompkins filed a motion to recuse,
Judge Magnus-Stinson would have recused herself or the court of appeals would
have required her to recuse herself. Mr. Durham relies on 28 U.S.C. § 445(a-b),
28 U.S.C. § 144, and the Due Process Clause. To prevail on this claim, Mr.
Durham must show that counsel’s decisions fell outside the wide range of
reasonable strategic choices. Burt v. Titlow, 571 U.S. 12, 22–23 (2013). Mr.
Tompkins’ motion, whether directed to the district court or the circuit court,
would have had to assert that because Judge Magnus-Stinson used to work for
and with, and remains friends with, Democrats, she would be unable to give a
fair trial to a Republican who thinks some of those Democrats hate him. The
additional bases for bias fare no better: having a mentor who was antagonistic
to Mr. Durham doesn’t show that Judge Magnus-Stinson was biased against
him; being frugal and condemning his use of hard-working people’s money to
fund an extravagant lifestyle doesn’t show bias; Mr. Durham provided no basis
for the court to believe that Judge Magnus-Stinson appointed counsel with
conflicts; and Judge Magnus-Stinson’s allowing the SEC to reopen a case against
Mr. Durham in 2016 could not have been a basis for recusal because it hadn’t
yet occurred. Mr. Durham cites no law to support his proposition that such a
motion would produce either self-recusal or a mandated recusal. Mr. Durham’s
allegations don’t overcome the presumption that Mr. Tompkins’s decision to
refrain from filing a motion to recuse was reasonable.
Neither the facts nor the law support Mr. Durham’s claim he received
ineffective assistance of counsel at trial, sentencing, and resentencing because
his counsel didn’t seek Judge Magnus-Stinson’s recusal. See SEC v. Durham,
No. 1:11-cv-00370-JMS-TAB, 2018 U.S. Dist. LEXIS 12886 (S.D. Ind. Jan. 26,
2018).
Ground 7: Trial counsel had an actual conflict of interest
Mr. Durham contends that his Sixth Amendment right was violated
because Mr. Tompkins had an actual conflict of interest. Mr. Durham asserts
that he and Mr. Tomkins agreed that Mr. Durham would give Mr. Tompkins $1
million, from which Mr. Tompkins would pay any litigation expenses, and the
rest would constitute his fee as trial counsel. Mr. Durham argues that his
counsel didn’t secure necessary expert witnesses and a computer programmer
to search the government’s discovery because those expenses would have
reduced his fee, so Mr. Tompkins had a pecuniary interest in direct conflict with
Mr. Durham’s interests. Mr. Durham contends that Mr. Tompkins’s conflict of
interest adversely affected his performance because he didn’t secure these
experts.
“The Sixth Amendment right to effective assistance of counsel
encompasses ‘a correlative right to representation that is free from conflicts of
interest.’” Blake v. United States, 723 F.3d 870, 880 (7th Cir. 2013) (quoting
Wood v. Georgia, 450 U.S. 261, 271 (1981)). There are two frameworks to analyze
a conflict of interest claim in a collateral proceeding, under either Cuyler v.
Sullivan, 446 U.S. 335 (1980) or Strickland v. Washington.
Mr. Durham proceeds under Cuyler, arguing Mr. Tompkins worked under
an actual conflict of interest. Cuyler applies “if the defense counsel was faced
with a choice between advancing his own interests above those of his client.”
Blake v. United States, 723 F.3d at 880 (quoting Hall v. United States, 371 F.3d
969, 973 (7th Cir. 2004)). To succeed under the Cuyler framework, Mr. Durham
must show an actual conflict, which “exists if the defense counsel was faced with
a choice between advancing his own interests above those of his client[,]” Hall v.
United States, 371 F.3d at 973 (citing Stoia v. United States, 22 F.3d 766, 771
(7th Cir. 1994), and that the actual conflict had “an adverse effect” on his
counsel’s performance. Blake v. United States, 723 F.3d at 880. He can make
such a showing “by demonstrating ‘that there is a reasonable likelihood that his
counsel’s performance would have been different had there been no conflict of
interest.’” Id. (quoting Hall v. United States, 371 F.3d at 974).
While conflict of interest typically arises when a lawyer represents two or
more co-defendants, “[a] conflict may also arise when a client's interests are
adverse to his lawyer's pecuniary interests.” Daniels v. United States, 54 F.3d
290, 294 (7th Cir. 1995). The court of appeals has cited the Second Circuit’s
decision holding that a contingency fee between defense counsel and defendant
created an actual conflict of interest as an example of an adverse pecuniary
interest. Daniels v. United States, 54 F.3d 290, 294 (7th Cir. 1995) (citing
Winkler v. Keane, 7 F.3d 304, 308 (2d Cir. 1993)).
Mr. Durham’s sworn petition alleges enough facts to require an evidentiary
hearing as to whether there was an actual conflict of interest which had an
adverse effect on Mr. Tompkins’s performance. Mr. Durham argues that he gave
Mr. Tompkins $1 million, which was to include both his attorney’s fee and
litigation expenses, and that his attorney would be able to keep any of the funds
that he didn’t spend on litigation expense. As Mr. Durham sees it, Mr. Tompkins
would stand to “earn” any dollar not spent on experts or other litigation
expenses. Mr. Durham has also alleged sufficient facts relating to the adverse
effect of Mr. Tompkins’s performance. He cites emails discussing hiring two
experts to testify on valuations and other financial material. See, e.g., [Doc. No.
1-24 at 14-16]. He cites a letter Mr. Tompkins sent the government disclosing
one of the experts. But Mr. Durham says that Mr. Tompkins didn’t present any
experts on this issue during the proceedings because he didn’t properly fund the
experts. Id. at 20-21.
Ground 8: Appellate counsel was ineffective regarding Count 3
Mr. Durham argues that his appellate counsel, Mr. Mutchnik, was
unconstitutionally deficient because he didn’t challenge the sufficiency of the
evidence with respect to Count 3 of the Indictment. Mr. Durham notes that Mr.
Mutchnik successfully challenged the other two counts alleging wire fraud
relating to bank wires sent to Fair Finance based on the sufficiency of the
evidence and contends he should have challenged the other count as well.
As discussed many pages earlier with respect to Ground 2, an appellate
counsel’s performance isn’t deficient unless counsel “abandoned a nonfrivolous
claim that was both ‘obvious’ and ‘clearly stronger’ than the claim that he
actually presented” and counsel’s decision to forego the nonfrivolous claims
didn’t “ha[ve] a strategic justification.” Shaw v. Wilson, 721 F.3d 908, 915 (7th
Cir. 2013). This standard will be met if counsel disregarded a nonfrivolous claim
was obvious and clearly stronger than those raised without strategic
justification. Id. (citing Smith v. Robbins, 528 U.S. 259, 288 (2000)).
Mr. Durham argues that Mr. Mutchnik should have made an identical
argument on an additional count of the indictment. He doesn’t argue that
including this third count would have affected his sentence or somehow been a
“clearly stronger” argument that those presented on appeal. Mr. Durham hasn’t
alleged facts sufficient to require a hearing on this issue.
Ground 9: Trial counsel was ineffective at first sentencing
Mr. Durham makes two arguments contending that Mr. Tompkins was
unconstitutionally ineffective at sentencing, neither of which require a hearing.
His argument that Mr. Tompkins’s performance drafting a sentencing
memorandum was deficient can’t succeed because Mr. Durham admits that
another attorney corrected alleged errors and he doesn’t challenge the brief
actually filed with the court. Accordingly, he can’t show prejudice. To the extent
he argues his counsel was unconstitutionally deficient because he didn’t
properly engage an expert on valuation issues, this argument fails for the same
reason as his expert issue fails in Ground 1: Mr. Durham didn’t submit affidavits
from the proposed experts or otherwise indicate what their fully-informed expert
opinions would have been and how they would have testified at sentencing. In
fact, Mr. Durham concedes that neither expert was able to complete an analysis
of the financials about which he hoped they would testify. Mr. Durham hasn’t
alleged facts sufficient to show that any testimony from an expert would have
produced a different result. See Patel v. United States, 19 F.3d at 1237.
Mr. Durham also argues that Mr. Tompkins should have submitted certain
evidence to the jury and at sentencing, contending that the evidence would have
provided context and prevented a finding of intended loss. Given the amount of
evidence the government introduced, there isn’t a reasonable probability that the
introduction of the evidence would have led to a different result. Strickland v.
Washington, 466 U.S. at 690.
Mr. Durham also takes issue with the court’s application of the guidelines.
He contends that the court used the incorrect version of the sentencing
guidelines, citing to the amendments that were proposed in January 2015. The
cited amendment wasn’t effective at either the time sentencing or resentencing.
Mr. Durham hasn’t demonstrated any error or that any supposed error resulted
“in a complete miscarriage of justice.” United States v. Coleman, 763 F.3d 706,
708 (7th Cir. 2014), as amended on denial of reh'g and reh'g en banc (Oct. 16,
2014) (quoting Blake v. United States, 723 F.3d 870, 878-79 (7th Cir. 2013)).
Ground 10: Appellate counsel failed to challenge fraud loss based on intervening
Supreme Court case that was issued during appeal
Mr. Durham contends his appellate counsel, Mr. Mutchnik, was
unconstitutionally deficient because he didn’t challenge the district court’s
actual fraud loss determination. Mr. Durham argues that Mr. Mutchnik should
have alerted the court to the then-newly-issued Supreme Court decision Burrage
v. United States, 571 U.S. 204, 206 (2014), and presented an argument that the
district court didn’t find that Mr. Durham’s actions were the but-for cause of the
actual loss.
Appellate counsel may notify the court of appeals of additional “pertinent
and significant” authority after filing a brief. Fed. R. App. P. 28(j). Burrage held
that “at least where use of the drug distributed by the defendant is not an
independently sufficient cause of the victim’s death or serious bodily injury, a
defendant cannot be liable under the penalty enhancement provision of 21 U. S.
C. §841(b)(1)(C) unless such use is a but-for cause of the death or injury.”
Burrage v. United States, 571 U.S. at 218-19.
Mr. Durham maintains that Mr. Mutchnik’s failure to alert the court of
appeals to Burrage was ineffective assistance of counsel. The government argues
that appellate counsel could not have been ineffective because Burrage doesn’t
apply, but the court of appeals later cited Burrage for the proposition that “[t]he
phrase ‘result from’ imposes a requirement of but-for causation” in actual loss
calculations. United States v. Yihao Pu, 814 F.3d 818, 824 (7th Cir. 2016). When
examining an ineffective assistance claim, however, the court must avoid the
“distorting effects of hindsight[.]” Vinyard v. United States, 804 F.3d at 1225. At
the time the court of appeals issued its opinion, Burrage was not so clearly a
“pertinent and significant” authority that Mr. Mutchnik’s choice to not advise the
court of the appeals of the decision rendered the representation
unconstitutionally deficient.
In any event, Mr. Durham hasn’t shown prejudice. The court of appeals
opinion addressed the causation issue in Mr. Durham’s appeal. The court said:
The defendants contend that their fraud did not cause the full $202
million in losses. Instead, they cast partial blame on the effects of
the 2008 financial crisis and the ensuing recession. But they did not
substantiate that claim. The only hard evidence they submitted
consisted of an affidavit of a former Obsidian employee attributing
Fair's declining value to market forces and valuations generated by
Fair itself reporting that it had more assets than liabilities in
November 2009. But Fair's own internal accounting could not be
trusted; the evidence established widespread manipulation of its
financial information. And the affidavit from the former Obsidian
employee is very general; it does not indicate how much of the loss
in value was attributable to broader problems affecting the American
economy. While it is certainly possible that the recession
compounded the effects of the defendants' fraud, there is no reliable
evidence establishing whether and to what extent it actually
impacted Fair's business.
United States v. Durham, 766 F.3d 672, 687 (7th Cir. 2014). Mr. Durham didn’t
present sufficient evidence to show that any other factor contributed to the
actual loss, which would rule out a but-for causation argument. Even Mr.
Mutchnik’s performance was unconstitutionally deficient, Mr. Durham has not
shown prejudice.
Ground 11: Appellate counsel failed to challenge the sufficiency of the evidence of
the wire fraud counts relying on the use of emails and cellular phone calls
Mr. Durham argues that Mr. Mutchnik was unconstitutionally ineffective
because counsel didn’t challenge the sufficiency of the evidence with respect to
the wire fraud counts that related to the use of email and cell phone calls (Counts
4, 6-11). Mr. Durham can’t show that this argument was “clearly stronger than
the claim[s] that [Mr. Mutchnik] actually presented.” Shaw v. Wilson, 721 F.3d
908, 915 (7th Cir. 2013) (internal quotation marks omitted). As already
discussed, Mr. Mutchnik successfully challenged two wire fraud counts for
sufficiency of evidence. A challenge to the sufficiency of evidence as to the
interstate nature of the calls and emails wasn’t clearly stronger than the issues
that Mr. Mutchnik challenged. The government offered evidence that the
communications were interstate communication. Agent Halliden testified that
Mr. Durham was in California during all of the calls upon which Counts 7-11
were based. [Trial Tr. vol. 3, 745; Trial Tr. vol. 4 921-922]. The calls were to
individuals in Indiana and Ohio. The interstate nature of the emails upon which
counts 4 and 6 were based are supported by Exhibits 209 and 210. Mr. Durham
hasn’t shown that Mr. Mutchnik was unconstitutionally ineffective.
Ground 12: Trial counsel presented an incorrect jury instruction regarding the “in
connection” element required under securities fraud
Mr. Durham claims that Mr. Tompkins’s performance was
unconstitutionally deficient in providing an incorrect jury instruction regarding
the “in connection” element of security fraud. Mr. Tompkins tendered a two-part
jury instruction relating to the “in connection” element. Mr. Durham contends
that Mr. Tompkins should have tendered the following jury instruction that only
includes one of those portions: “[f]urthermore, delaying a redemption of an
investment certificate is not a purchase or sale of a security.” As before, to
succeed on his claim of ineffective assistance of counsel, Mr. Durham must show
both “that counsel made errors so serious that ‘counsel’ was not functioning as
the counsel guaranteed the defendant by the Sixth Amendment” and “that
counsel’s errors were so serious as to deprive [Mr. Durham] of a fair [result].”
Strickland v. Washington, 466 U.S. at 687. The court needn’t consider whether
the counsel was deficient if the court finds that the alleged deficiency did not
prejudice the defendant. Richardson v. United States, 379 F.3d 485, 487 (7th
Cir. 2004). Mr. Durham can’t show prejudice because the instruction he says
Mr. Tompkins should have tendered would also have been rejected.
The court of appeals made clear that the civil case law that the defendants
cited in an attempt to limit the scope of criminal liability under § 10(b) was
inapplicable. Specifically referring to the language that Mr. Durham contends
Mr. Tompkins should have used, the court wrote
The defendants urged the court to instruct the jury that "[s]imply
continuing to hold a security does not qualify" as a purchase or sale
of a security. This argument was premised on civil cases involving
the judicially created private cause of action under § 10(b) and Rule
10b-5, but the "rules governing private Rule 10b-5 actions ...
developed differently from the law defining what constitute[s] a
substantive violation of Rule 10b-5." Merrill Lynch, 547 U.S. at
80… [W]hat matters in this context is the scope of substantive
criminal liability under § 10(b), not the judicially created rules for
private civil actions. See Merrill Lynch, 547 U.S. at 84 ("Blue Chip
Stamps ... purported to define the scope of a private right of action
under Rule 10b-5—not to define the words 'in connection with the
purchase or sale.'"); see also Blue Chip Stamps, 421 U.S. at 751
n.14 ("[T]he purchaser-seller rule imposes no limitation on the
standing of the SEC to bring actions for injunctive relief under §
10(b) and Rule 10b-5."). This line of cases does not provide a defense
to criminal liability for securities fraud. The proposed instruction
thus would have misled the jury about the scope of § 10(b).
United States v. Durham, 766 F.3d 672, 682-83 (7th Cir. 2014). Mr. Durham
suffered no prejudice by Mr. Tompkins not proposing the instruction which Mr.
Durham suggested because that instruction is an incorrect statement of law. Mr.
Durham cannot succeed on a claim of ineffective assistance of counsel based on
this jury instruction.
III. CONCLUSION
Accordingly, the court:
1. DISMISSES IN PART Ground 1. The court dismisses Mr. Durham’s claims
as to Mr. Tompkin’s failure to obtain the services of investment experts,
hire a computer programmer, engage a wiretap expert, and bring in
additional lawyers. The court will hear evidence on Mr. Durham’s claims
regarding the testimony of Terry Whitesell, Don Lagrone, Todd Bontrager,
Ron Kaffen, Keith Schaffter, Rusty Riggenbach, Keith Kuczan, Jeff Birk,
Erin Beesley, Jim Covert, Ben Kimmerling and Anthony Schlitche and on
Mr. Durham’s claims relating to the cross-examination of Ben Kimmerling
and Anthony Schlitche.
2. DISMISSES Grounds 2-6;
3. Will hear evidence as to Ground 7; and
4. DISMISSES Grounds 8-12; and
An evidentiary hearing will be scheduled in a separate order.
SO ORDERED.
ENTERED: October 25, 2019
/s/ Robert L. Miller, Jr.
Judge, United States District Court
For the Southern District of Indiana
Sitting by designation
Distribution:
TIMOTHY S. DURHAM
60452-112
MCCREARY - USP
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Inmate Mail/Parcels
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Brian L. Reitz
UNITED STATES ATTORNEY'S OFFICE (Indianapolis)
brian.reitz@usdoj.gov