United States v. Luessenhop , 258 F. App'x 597 ( 2007 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-6760
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
CHARLES ROBERT LUESSENHOP,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. James C. Cacheris, Senior
District Judge. (1:02-cr-00298-JCC; 1:03-cv-00458-JCC)
Argued: September 27, 2007 Decided: December 19, 2007
Before TRAXLER and KING, Circuit Judges, and Benson E. LEGG, Chief
United States District Judge for the District of Maryland, sitting
by designation.
Affirmed by unpublished opinion. Judge Legg wrote the opinion, in
which Judge Traxler and Judge King joined.
ARGUED: James Warren Hundley, BRIGLIA & HUNDLEY, P.C., Vienna,
Virginia, for Appellant. Thomas Higgins McQuillan, Assistant
United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,
Alexandria, Virginia, for Appellee. ON BRIEF: Chuck Rosenberg,
United States Attorney, Alexandria, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
LEGG, Chief District Judge:
Charles Robert Luessenhop appeals from the district court’s
order dismissing his motion to vacate, set aside, or correct his
sentence pursuant to 28 U.S.C. § 2255 (2000). We granted a
certificate of appealability to determine whether Luessenhop
received ineffective assistance of counsel at his sentencing. To
resolve this question, we must also decide when the “actual loss”
rule should be relaxed in calculating a defendant’s restitution
obligation under the United States Sentencing Guidelines.
We conclude that a defendant in a fraudulent loan application
case may avoid the actual loss rule only by establishing fraud on
the part of the Government. Finding such fraud absent from the
record before us, we hold that the failure of Luessenhop’s attorney
to invoke the so-called “McCoy” exception when objecting to the
district court’s loss calculation did not amount to ineffective
assistance of counsel. Accordingly, we affirm the district court’s
order dismissing Luessenhop’s motion under § 2255.
I.
A.
In May 2002, Luessenhop pled guilty to a single count of
conspiracy to defraud the United States, in violation of 18 U.S.C.
§ 371 (2000). The plea agreement stipulated that Luessenhop made
false statements to the Department of Housing and Urban Development
2
(HUD) for the purpose of obtaining HUD-insured mortgages on two
properties1 for buyers who were unable to make the required down
payments. Both buyers defaulted on their mortgages soon after
purchasing the properties.
In accordance with the governing regulations and guidelines,
HUD paid the balance of the mortgages and assumed ownership of the
properties. Such properties are referred to as Real Estate Owned
(“REO”) properties, and are ultimately resold pursuant to Marketing
and Management contracts (“M & M contracts”) between HUD’s REO
division and private real estate companies (“M & M contractors”).
Before a REO property is resold, an M & M contractor is
required to obtain an appraisal of the property from a HUD-approved
appraiser. The property is then advertised for sale and a bidding
process ensues. In most cases, the highest bid meeting or exceeding
the appraisal price is awarded a sales contract. J.A. 96. In
selecting among potential bidders, HUD gives preference to those
who certify that they are purchasing the property as owner-
occupiers.
After assuming ownership of the K Street and G Street
properties, HUD entered into M & M contracts with First Preston
Management Co. and In-Town Management Group. First Preston obtained
an appraisal of the K Street property, listed it for resale, and
1
The properties are located at 1509 G Street, S.E.,
Washington, DC (the “G Street property”) and 815 K Street, N.E.,
Washington, DC (the “K Street property”).
3
awarded a sales contract to Claude Jackson. The property was
subsequently conveyed to Jackson for a price of $60,500. Intown
conducted a similar process with respect to the G Street property,
which was eventually resold to Theodore Powell for $109,000.
The appraisals of both properties were signed by Winfield
Willis, a HUD-approved appraiser licensed to perform appraisals in
Washington, DC. Willis later testified, however, that the
appraisals were actually performed by Keith Patterson, a business
partner of Willis’s who was not licensed to perform appraisals in
Washington, DC at the time.2 J.A. 124-25. Although Willis never
visited the properties, he authorized Patterson to sign his name on
both appraisals. Neither Willis nor Patterson informed HUD that
Willis did not actually perform the appraisals. Id. at 127, 132.
Unaware that the K Street property had sold two years earlier
for $165,000, Patterson appraised its value at $63,000. In support
of his valuation, Patterson observed that there was water damage in
the basement and that the kitchen in one of the building’s units
needed rehabilitation. He therefore determined that the property
was in “fair” condition. The district court credited Patterson’s
testimony that he “did not accept money from anyone to artificially
deflate the value of the property.” J.A. 378.
2
Patterson was, however, licensed to perform appraisals in
Maryland. J.A. 171.
4
Two months after the K Street property was conveyed to Claude
Jackson for $60,500, Jackson resold it for $179,950. As the
district court put it, this transaction was “teeming with
circumstantial evidence indicative of fraud.” J.A. 388. Jackson had
previously certified, in an addendum to his sales contract with
HUD, that he intended to occupy the K Street property as his
primary residence for at least one year. He breached this
commitment by promptly reselling the property.
Furthermore, although Jackson resold the property for almost
three times its purchase price, he testified that he did not recall
the resale price, that he received no money from the transaction,
and that he could not remember how the resale proceeds were
disbursed. J.A. 140-45. Similarly, the attorney who handled the
closing on Jackson’s behalf - an individual named Michael Perry -
testified that he could not remember the transaction. Id. at 162-
65. The testimony of both individuals was contradicted by
documentary evidence indicating that Jackson received approximately
$10,000 in connection with the sale, and that Perry and his
settlement company received just shy of $130,000. J.A. 16-17.
B.
In August 2002, pursuant to Section 2F1.1 of the United States
Sentencing Guidelines (2001),3 Luessenhop was sentenced to four
3
Effective November 1, 2001, Section 2F1.1 of the Guidelines
was consolidated with Section 2B1.1. For purposes of this opinion,
however, all Guidelines citations are to the 2001 version unless
5
months’ imprisonment, four months’ home detention, and two years of
supervised release. He was also ordered to pay restitution in the
amount of $223,816.77.
In calculating Luessenhop’s restitution obligation, the
district court relied on Application Note 8(b) to Section 2F1.1 of
the Guidelines. The note provides, in relevant part: “In fraudulent
loan application cases, the loss is the amount of the loan not
repaid . . . reduced by the amount the lending institution has
recovered, or can expect to recover, from any assets pledged to
secure the loan.” In accordance with this provision, the district
court calculated HUD’s loss by ascertaining the amount paid to
satisfy the mortgages on the K Street and G Street properties,
subtracting the amount recovered in the REO resales to Claude
Jackson and Theodore Powell, and adding the fees and expenses
incurred in the process. This computation yielded a total loss of
$223,816.77.
Luessenhop’s attorney objected to the district court’s loss
calculation on the grounds that HUD’s actual loss was not
reasonably foreseeable to Luessenhop at the time of the offense.
J.A. 54. Claiming that Luessenhop could not have anticipated that
HUD would resell the properties at prices substantially below
market value, counsel at sentencing argued that Luessenhop was
entitled to have his restitution obligation reduced. Id.
otherwise noted.
6
 The district court rejected this argument under United States
v. McCoy, 242 F.3d 399, 404 (D.C. Cir. 2001) a D.C. Circuit
decision holding that the loss calculation in fraudulent loan
application cases should be based on the actual sale price of the
collateral, “not any greater amount that the lender should have
been able to recover.” J.A. 58. The McCoy opinion suggests,
however, that this “actual loss” rule does not apply when the sale
of collateral is a sham or not an arms-length transaction, or when
the Government artificially depresses the value of its recovery.
242 F.3d at 404.
Although familiar with the McCoy decision, Luessenhop’s
attorney did not invoke this exception in support of his objection
to the district court’s loss calculation. Asked how he would
distinguish McCoy, counsel responded that he could not, other than
to say it was a non-binding decision from the D.C. Circuit. J.A.
55. Counsel also declined to argue that the REO sales of the
properties were fraudulent. Id.
After Luessenhop’s objection to the district court’s loss
calculation was overruled, the Government moved for a two-level
downward departure pursuant to Section 5K1.1 of the Guidelines, in
light of Luessenhop’s substantial assistance in the investigation
of a codefendant. The district court granted the motion and
sentenced Luessenhop at the low end of the guideline range. J.A.
64-65.
7
C.
In April 2003, Luessenhop filed the present motion to vacate,
set aside, or correct his sentence pursuant to 28 U.S.C. § 2255.
The motion alleged that the Government had failed to produce
exculpatory evidence and that Luessenhop had received ineffective
assistance of counsel.
In support of his ineffective assistance claim, Luessenhop
faulted his attorney for failing to invoke the McCoy exception when
objecting to the district court’s loss calculation. According to
Luessenhop, the appraisals of the properties were infected with
fraud, causing an artificially depressed recovery in the subsequent
REO sales to Claude Jackson and Thedore Powell. Had his attorney
discovered the fraudulent appraisals and brought them to the
district court’s attention, Luessenhop argued that his restitution
obligation would have been substantially reduced.
The district court denied Luessenhop’s motion without a
hearing in July 2004. Luessenhop appealed. In an unpublished
opinion filed on July 29, 2005, this Court remanded for an
evidentiary hearing as to whether Luessenhop received ineffective
assistance of counsel at his sentencing. United States v.
Luessenhop, 143 Fed. Appx. 528, 2005 WL 1793575, No. 04-7328 (4th
Cir. 2001), J.A. 82-87 (Hereinafter Luessenhop I).4 According to
4
The certificate of appealability in Luessenhop I was limited
to the claim that Luessenhop received ineffective assistance of
counsel. The panel did not address Luessenhop’s argument that the
8
the panel, the hearing was to focus on whether the appraisals of
the properties were fraudulent. Id. at 5, J.A. 86.
In advance of the evidentiary hearing, the district court
filed a memorandum specifying Luessenhop’s burden of proof. Id. at
88-94. In order to prevail on his ineffective assistance claim,
Luessenhop was required to establish: “[I] that “the appraisals
were not at arms length, were the result of fraud or misconduct, or
were otherwise a sham; and [ii] that HUD knew of the fraudulent
nature of the appraisals.” Id. at 92.
The evidentiary hearing took place on February 27, 2006.
Luessenhop called seven witnesses, including Willis and Patterson
(the individuals who signed and performed the appraisals,
respectively); Colleen Morrison, an expert real estate appraiser;
and James C. Clark, the attorney who represented Luessenhop at
sentencing.5
At the close of Luessenhop’s case-in-chief, the Government
moved to dismiss. The district court granted the motion, finding
that Luessenhop had failed to establish that the appraisals were
fraudulent as to their valuations or that HUD was complicit in
Government failed to produce exculpatory evidence. J.A. 83.
5
Luessenhop also called Claude Jackson (the individual who
purchased and “flipped” the K Street property); Judith Blowe (a
real estate broker who allegedly represented Jackson in connection
with his purchase of the K Street property); and Michael Perry (the
attorney who closed the subsequent sale of the K Street property on
Jackson’s behalf).
9
fraud or misconduct. “Absent such evidence,” the Court explained,
“there would be no reason for [Luessenhop’s attorney at sentencing]
to press an argument based on the [McCoy] exception.” Id. at 388.
Accordingly, the Court held that Luessenhop did not receI’ve
ineffective assistance at his sentencing and dismissed the case.
Luessenhop then filed this appeal.
II.
In considering the district court’s dismissal of Luessenhop’s
§ 2255 motion, we review its conclusions of law de novo and its
findings of fact for clear error. United States v. Roane, 378 F.3d
382 (4th Cir. 2004). We decide de novo whether specific facts
constitute ineffective assistance of counsel. See United States v.
Witherspoon, 231 F.3d 923, 936 (4th Cir. 2000).
III.
A.
Luessenhop argues that the district court misinterpreted the
McCoy exception by requiring him to establish fraud on the part of
the Government. Appellant’s Br., 18, 20-22. According to
Luessenhop, all that is required to invoke the exception is a
showing that “the resale of the propert[ies] was done in a manner
to [] artificially depress [HUD’s] recovery. Id. at 18 (emphasis
original)(quoting McCoy, 242 F.3d at 404)(internal quotation
omitted). Pointing to irregularities in the appraisals and
10
circumstantial evidence of fraud in the subsequent resale of the K
Street property, Luessenhop argues that he has met his burden under
McCoy and is therefore entitled to have his restitution obligation
reduced.
The district court did not read McCoy so broadly, and neither
do we. We hold that the McCoy exception to the actual loss rule
requires a defendant to show 1) that the sale of collateral by a
Government agency was the product of fraud, not at arms length, or
otherwise a sham; and 2) that the fraud or misconduct was
attributable to the Government agency. The district court correctly
applied this standard in evaluating Luessenhop’s claim for relief.
We agree with the district court that the language of McCoy
“contemplates some sort of complicity on the part of the Government
agency” before a departure from the actual loss rule is
appropriate. J.A. 383. In holding that the loss calculation from a
fraudulent Small Business Administration (SBA) loan application
should be based on the actual sale price of the collateral pledged
to secure the loan, the McCoy panel emphasized the lack of evidence
suggesting “that the liquidation sale was a sham, or that the SBA
artificially depressed the value of its recovery.” 242 F.3d at 404
(emphasis supplied). This language clearly suggests that a below-
11
market recovery should be attributable to Government fraud or
misconduct before an exception to the actual loss rule is made.6
In contrast, Luessenhop argues that the actual loss rule
ceases to apply when the sale of collateral is “done in a manner to
artificially depress recovery,” whether or not the depressed
recovery is attributable to fraudulent Government activity. J.A. 22
(emphasis original).7 As the district court correctly determined in
dismissing Luessenhop’s claim, this interpretation demands more
than the language of McCoy will bear.
Our reading of McCoy is founded on practical concerns as well.
Allowing defendants in cases such as this to avoid the actual loss
rule without showing fraud on the part of the Government would turn
sentencings involving the loss table into mini-trials into the
reasonableness of the Government’s efforts to cure its loss. We
discern nothing in the language or purpose of the Sentencing
Guidelines to mandate such an inquiry, and we decline to impose one
ourselves by accepting the expansive interpretation of McCoy that
Luessenhop would have us adopt.
6
A panel of this Court suggested as much in Luessenhop I,
which interpreted McCoy as holding that “absent fraud on the part
of the Government, the loss calculation should be based on the
actual sale price of the collateral[.]” J.A. 84 (emphasis
supplied).
7
As Luessenhop would have it, “McCoy does not ... require
proof of fraud on the part of the government agency before a
reduction in the loss amount could be granted.” J.A. 22.
12
In sum, the district court properly interpreted the McCoy
exception in formulating Luessenhop’s burden of proof. In order to
avoid the actual loss rule, Luessenhop was required to establish
(i) that appraisals of the properties were fraudulent as to their
valuations, and (ii) that the fraud was somehow attributable to
HUD.
B.
The district court correctly determined that Luessenhop had
failed to meet his burden. In presenting his case during the
evidentiary hearing, Luessenhop argued that certain “indicia of
fraud” in the appraisal and resale of the properties justified a
departure from the actual loss rule.8 He presents essentially the
same arguments in this appeal, emphasizing three claims in
particular. Each was addressed and properly rejected by the
district court.
First, Luessenhop argues that the appraisals of the properties
“were forgeries, prepared by an unlicensed appraiser.” Appellant’s
Reply Br. at 2. According to Luessenhop, the fact that the
appraisals were signed by Willis, but performed by Patterson,
8
At the hearing, Luessenhop’s counsel argued that “what we do
have is a sufficiently strong circumstantial case involving what
could be called indicia or badges of fraud that would convince the
court that, had you been aware of these occurrences and what
happened in this resale[,] there’s a reasonable likelihood that the
Court would not have imposed the $223,000 loss figure.” J.A. 109.
13
without HUD’s consent, “strikes at the heart of the valuation issue
in this case.” Id. at 3.
As the district court observed, the “arrangement” between
Willis and Patterson may well “constitute [a] violation[] of the
pertinent HUD regulations and [] District of Columbia licensure
requirements.” J.A. 384. Luessenhop has not established, however,
that the arrangement had any effect on Patterson’s valuation of the
properties. Furthermore, the district court found no evidence
suggesting that HUD was aware that Willis did not perform the
appraisals, id., and there is nothing in the record to convince us
that this finding is clearly erroneous. We therefore conclude that
Luessenhop has failed to show fraud on HUD’s behalf, and that the
arrangement between Patterson and Willis does not warrant a
departure from the actual loss rule.
Second, Luessenhop contends that Patterson’s appraisals
“drastically undervalued” the properties. Appellant’s Reply Br. at
3. In support of this argument, Luessenhop presented the testimony
of Colleen Morrison, an expert in the field of real estate
appraisals.9 Although Morrison testified that she disagreed with
9
Luessenhop argues that Morrison’s testimony “was not the only
evidence presented to show the dramatic undervaluation of the
properties in question.” Appellant’s Reply Br. at 3. According to
Luessenhop, the fact that Claude Jackson resold the K Street
property for almost triple the price of Patterson’s valuation “is
sufficient for a reasonable finder of fact to conclude that [its]
value had been artificially depressed[.]” Id. This argument fails,
for two reasons. First, we have already concluded that the McCoy
exception requires Luessenhop to establish fraud on HUD’s behalf;
14
Patterson’s valuations, she declined to conclude that the
appraisals had been performed in a fraudulent manner. J.A. 228.
Furthermore, the district court observed that Morrison never
physically inspected either property and that her valuations were
based on faulty assumptions. Id. at 228. The court therefore
determined that Morrison was not a reliable witness, and it refused
to conclude that Patterson’s appraisals were fraudulent “based on
a comparison with Morrison’s appraisal.” Id. We see no reason to
disturb this finding.
Luessenhop’s third argument is that the ultimate resale of the
K Street property did not result from an arms-length transaction.
Appellant’s Reply Br. at 4. Although the district court rightly
noted that the K Street resale was “teeming” with circumstantial
evidence of fraud, J.A. 388, such evidence does not establish that
Patterson or Willis acted fraudulently in appraising the property,
let alone that HUD was aware of it. HUD’s initial resale of the K
Street property was separate and distinct from the transaction in
which Claude Jackson subsequently “flipped” the property two months
later, and Luessenhop has failed to establish that Patterson,
Willis, or HUD were in any way complicit with Jackson and his
he cannot invoke the exception merely by arguing that Patterson’s
valuations were “artificially depressed.” Second, as we explain
infra, the circumstances surrounding Jackson’s resale of the K
Street property do not establish that Patterson’s appraisals were
fraudulent as to their valuations, much less that HUD was complicit
in such a scheme.
15
confederates. Accordingly, we agree with the district court that
the irregularities in the K Street transaction are insufficient to
satisfy Luessenhop’s burden under McCoy.
IV.
To prevail on his ineffective assistance of counsel claim,
Luessenhop must establish (1) that his counsel’s performance “fell
below an objective standard of reasonableness,” and (2) that “there
is a reasonable probability that, but for counsel’s unprofessional
errors, the result of the proceeding would have been different.”
Strickland v. Washington, 466 U.S. 668, 687 (1984); see also McNeil
v. Polk, 476 F.3d 206, 215 (4th Cir. 2007). Failure to make either
of these showings will defeat Luessenhop’s claim. Strickland, 466
U.S. at 700.
In order to demonstrate that his counsel’s performance was
deficient, Luessenhop “must overcome the presumption that, under
the circumstances, the challenged action might be considered sound
trial strategy.” Id. In this case, Luessenhop argues that an
objectively reasonable attorney would have investigated the
“invalid” appraisals of the properties, brought them to the
district court’s attention, and argued for an adjusted loss
calculation “through a proper application of the McCoy exception.”
Appellant’s Br., 26.
16
As we have already explained, however, Luessenhop has failed
to establish that he was entitled to invoke the McCoy exception in
the first place. By way of review, there was no evidence before the
district court that the appraisals were based on fraudulently
depressed valuations or that HUD was complicit in fraud or
misconduct. Without evidence of fraud on HUD’s behalf, Luessenhop’s
attorney had no reason to pursue the McCoy exception when arguing
for a departure from the actual loss rule.
Furthermore, counsel testified at the evidentiary hearing that
he considered the possibility of attempting to prove fraud on HUD’s
behalf. J.A. 241. After discussing this strategy with Luessenhop,
however, he opted instead to seek a downward departure under
section 5K1.1 and to argue that HUD’s actual loss was unforeseeable
to Luessenhop at the time of the offense. Id. According to counsel,
“the conclusion that we came to was that there was risk involved in
exploring the fraud angle in that it might discourage the U.S.
Attorney’s office from giving us a [downward departure under
Section 5K1.1].” Id. at 243.
We believe that Luessenhop’s attorney made a tactical decision
not to raise a losing argument at sentencing. Moreover, he was
ultimately successful in obtaining a downward departure under
Section 5K1.1. Applying the “highly deferential” standard
announced by the Supreme Court in Strickland, we conclude that
counsel’s performance falls well within the boundaries of
17
acceptable trial strategy. Luessenhop has therefore failed to meet
his burden under the first prong of the Strickland test.
Luessenhop is also unable to establish that he was prejudiced
by his attorney’s performance. On the record before us, there is no
reasonable probability that the result of the proceedings would
have been different had counsel unearthed the “invalid” appraisals
and attempted to invoke the McCoy exception. To the contrary,
counsel wisely determined that pursuing the “fraud angle” might
have jeopardized the possibility that the Government would move for
a downward departure under section 5K1.1. Accordingly, Luessenhop
has failed to satisfy Strickland’s second requirement, and his
ineffective assistance claim must fail.
V.
For the foregoing reasons, we hold that the McCoy exception to
the actual loss rule requires a defendant to show fraud on the part
of the Government. In this case, the district court correctly
determined that Luessenhop had failed to establish fraud on HUD’s
behalf. Accordingly, we conclude that Luessenhop’s attorney was not
ineffective for failing to invoke the McCoy exception during his
sentencing. We therefore affirm the district court’s order
dismissing Luessenhop’s motion under § 2255.
AFFIRMED
18