United States v. Pergler, Richard ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3879
United States of America,
Plaintiff-Appellee,
v.
Richard Pergler,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 CR 469--Harry D. Leinenweber, Judge.
Argued September 11, 2000--Decided December 4, 2000
Before Bauer, Evans, and Williams, Circuit Judges.
Bauer, Circuit Judge. Richard Pergler was
convicted of mail fraud, money laundering, and
submitting false claims in connection with a
scheme to fraudulently bill Medicare for
incontinence products. Before his indictment,
Pergler employed attorney Paul DeMuro of Latham
& Watkins to counsel him regarding Medicare
coverage for some of the products he sold. After
his indictment, Pergler employed two other Latham
& Watkins attorneys, Herve Gouraige and Michael
Leib, to defend him. In this direct appeal,
Pergler contends that his trial counsel was
forced to choose between vigorously representing
him and protecting their colleague, DeMuro. This
conflict of interest, Pergler argues, caused
Gouraige and Leib to violate his Sixth Amendment
right to effective assistance of counsel. Pergler
urges us to vacate his convictions and remand the
case for a new trial. We decline to do so.
I. Background
Pergler was convicted of selling non-
reimbursable adult incontinence products, notably
adult diapers and "fempouches" to Medicare
patients, and fraudulently billing the products
to Medicare. Medicare assigns products to an HPPC
code group, which, among other things, indicates
whether the product may be billed to Medicare.
Adult diapers are assigned to a non-billable
code, A4554. Pergler, however, billed "belted
undergarments" and "briefs" to Medicare under
billable code A4328, arguing that their status
fell into a gray area.
In 1994, Pergler became aware of the fempouch,
a diaper-like incontinence product with an insert
to collect urine samples. At the time Pergler
began selling the fempouch, it was a new product
with an undetermined billing status. The inventor
of the fempouch informed Pergler that his
attorney, Joy Thomas, was working to determine
the billing status of the product. Pergler
retained Paul DeMuro, a Latham & Watkins attorney
from California, to advise him about billing the
fempouch to Medicare. DeMuro, with Thomas and
Medicare expert Ron Nicholson, participated in
two conference calls regarding the billable
status of the fempouch. Nicholson opined that the
fempouch was billable to Medicare, but urged
Pergler to seek a final determination of its
billable status from Medicare. Pergler billed the
fempouch to Medicare before receiving a final
determination.
In October of 1994, the government investigated
and indicted Pergler for Medicare fraud. After
Pergler’s indictment, he retained Herve Gouraige
and Michael Leib, both of Latham & Watkins, as
defense counsel. One week before trial, Gouraige
and Leib informed the government that they
intended to mount a good faith defense. In
support, they planned to call Thomas, counsel to
the fempouch manufacturer, and question her about
the two conference calls.
The government was concerned that Thomas’
testimony could create a potential conflict of
interest for Pergler’s attorneys. Specifically,
the government theorized that Pergler relied on
Thomas’ advice of counsel. The government feared
that if the defense elicited Thomas’ testimony
about the conference calls, it would thereby
waive Pergler’s attorney-client privilege with
DeMuro. If the government then called DeMuro as
a witness, the defense attorneys would be in a
conflict of interest position when they cross
examined DeMuro.
The day before trial, the government filed a
memorandum raising these attorney-client
privilege and conflict of interest issues. The
government sought to determine whether Thomas’
testimony about the two conference calls would
destroy Pergler’s attorney-client privilege with
DeMuro. The district court ruled that Thomas’
proposed testimony would not waive Pergler’s
attorney-client privilege with DeMuro because the
calls were not confidential, and thus were not
subject to the privilege.
After the court’s ruling, the government asked
that Pergler waive his potential advice-of-
counsel defense. Attorney Gouraige indicated to
the court that he had counseled Pergler about the
waiver and that Pergler waived his advice-of-
counsel defense. The court engaged in a colloquy
with Pergler during which it briefly explained
the potential conflict of interest and confirmed
that Pergler indeed wanted to waive his advice-
of-counsel defense.
The government then requested that the court
appoint independent counsel to advise Pergler of
his rights. Again, in a brief colloquy with the
court, Pergler indicated that he was aware of his
right to discuss the waiver with independent
counsel. Pergler, however, declined the court’s
offer to allow him time to consult with another
attorney.
At trial, Pergler’s counsel called only one
witness on Pergler’s behalf, the fempouch
manufacturer. The defense did not call Thomas or
DeMuro. Pergler alleges that his attorneys’
failure to call these witnesses stemmed from
their conflict of interest. Further, Pergler
argues that the conflict of interest forced the
defense to truncate its cross-examination of
Nicholson.
Pergler, with new counsel, filed a direct
appeal claiming that his Latham & Watkins defense
team denied him effective assistance of counsel
as a direct result of their conflict of interest.
Pergler chose not to use 28 U.S.C. sec. 2255 to
bring his ineffective assistance of counsel
claim; therefore, we do not have the benefit of
a developed factual record.
II. Discussion
Pergler argues that the district court violated
his Sixth Amendment right to effective assistance
of counsel because it allowed Gouraige and Leib
to defend him despite an actual or potential
conflict of interest. The defendant bears the
burden of proof for an ineffective assistance of
counsel claim because we adopt a strong
presumption that counsel was effective. See
United States v. Herrera-Rivera, 25 F.3d 491, 495
(7th Cir. 1994) (citing Strickland v. Washington,
466 U.S. 668, 690 (1984)).
To prevail, Pergler must prove that (1) his
counsel’s performance was deficient and (2) the
failure to provide adequate representation
prejudiced his defense. See Cabello v. United
States, 188 F.3d 871, 875 (citing Strickland, 466
U.S. at 687). However, when, as here, the claim
is based on a conflict of interest, the defendant
can satisfy the prejudice element by proving
either that his counsel (1) labored under an
actual conflict of interest, see Strickland, 466
U.S. at 692, or (2) was subject to a potential
conflict of interest which the court was or
should have been aware of, and which it failed to
address adequately, see United States v. Fish, 34
F.3d 488, 492 (7th Cir. 1994) (citing Holloway v.
Arkansas, 435 U.S. 475, 484-91 (1978)). We review
ineffective assistance of counsel claims de novo.
See Cabello, 188 F.3d at 875 (citing Spreitzer v.
Peters, 114 F.3d 1435, 1450 (7th Cir. 1997)).
A. Conflict of Interest
We are generally reluctant to hear ineffective
assistance of counsel claims on direct appeal
because most trial records, unsupplemented by a
28 U.S.C. sec. 2255 hearing, lack the evidence
necessary to fashion a successful claim. See
Fish, 34 F.3d at 491 n.1. In his arguments,
Pergler implies that a conflict of interest
existed because he received advice from a Latham
& Watkins attorney while he was perpetrating
Medicare fraud, and hired other Latham & Watkins
counsel to defend him from the fraud charges. The
fact that both sets of attorneys work for the
same firm is not conclusive. When reviewing
ineffective assistance of counsel claims, we
presume that the attorneys made reasonable
judgments and decline to second guess strategic
choices. See United States v. Shukri, 207 F.3d
412, 418 (7th Cir. 2000). Pergler simply fails to
provide enough proof of a conflict to overcome
our presumption.
1) Actual Conflict of Interest
Pergler claims that his defense team labored
under an actual conflict of interest. An actual
conflict of interest exists when "the defense
attorney was required to make a choice advancing
his own interests to the detriment of his
client’s interests." United States v. Horton, 845
F.2d 1414, 1419 (7th Cir. 1988) (citations
omitted). Pergler contends that the government
admitted an actual conflict of interest when it
brought the issue of Thomas’ proposed testimony
to the attention of the district court. It is
clear from the record that the government
admitted no such actual conflict. The government
merely argued that a conflict of interest problem
could arise if Thomas’ testimony abrogated
Pergler’s attorney-client privilege with DeMuro
and if DeMuro were subject to cross-examination
by Pergler’s defense team. (Gov’t Mem. Concerning
Waiver of Attorney-Client Privilege, 1-2).
Further, Pergler failed to show that an actual
conflict existed. The district court’s response
to the government’s memorandum precluded an
actual conflict in this case. The court ruled
that the conference calls, the subject of Thomas’
proposed testimony, were not covered by the
attorney-client privilege. Therefore, testimony
about them would not waive Pergler’s attorney-
client privilege with DeMuro, and Pergler’s
defense team could freely question Thomas about
the conference calls without creating any
conflict of interest. This evidentiary ruling
eliminated the possibility that an actual
conflict existed regarding Thomas’ proposed
testimony.
2) Potential Conflict of Interest
Pergler briefly argues that Thomas’ proposed
testimony caused a potential conflict of
interest. The defendant’s burden of proof for
potential conflict of interest claims differs
depending on whether the conflict of interest was
brought to the judge’s attention. If an attorney
brought the potential conflict of interest to the
attention of the court, or the court knew or
reasonably should have known about the conflict,
we will assume prejudice when the judge fails to
address the conflict adequately. See Cabello, 188
F.3d at 875 (citing Holloway, 435 U.S. 475, 484-
91 (1978); Fish, 34 U.S. at 492). If the trial
judge did not have notice of the potential
conflict, the defense must prove that his counsel
actively represented conflicting interests and
that it prejudiced his case. See id. (citing
Cuyler, 446 U.S. 335, 350 (1979); Fish, 34 F.3d
at 492).
In this case, the judge had notice of the
potential conflict of interest addressed in the
government’s memorandum: that Thomas’ proposed
testimony about the conference calls could lead
to a conflict of interest situation. We believe
that the district court adequately addressed the
potential conflict created by Thomas’ proposed
testimony. As explained above, the judge’s
evidentiary ruling alleviated the potential
conflict. Further, the judge investigated and
learned that Pergler’s attorneys did not plan to
call DeMuro to the stand. Given this information,
the district court rightly concluded that the
risk of potential conflict had been nullified,
and allowed the proceeding to continue. Pergler
has not shown that an actual or mishandled
potential conflict of interest existed.
B. Deficient Performance and Prejudice
Pergler next argues that three of his defense
team’s decisions show deficient lawyering and
prejudiced his defense: (1) deciding not to call
DeMuro to provide an advice-of-counsel defense or
general testimony; (2) choosing not to call
Thomas as a witness; and (3) conducting a brief
cross-examination of Nicholson. When evaluating
an attorney’s performance, we presume that her
conduct "falls within the wide range of
reasonable professional assistance; that is, the
defendant must overcome the presumption that,
under the circumstances, the challenged action
’might be considered sound trial strategy.’"
Foster v. Schomig, 223 F.3d 626, 631 (7th Cir.
2000) (quoting Strickland, 466 U.S. at 689); see
Horton, 845 F.2d at 1419 (citations omitted).
Pergler fails to overcome the presumption. He
does not provide any evidence from the record
showing that Gouraige and Leib failed to pursue
a legitimate trial strategy by declining to call
Thomas and DeMuro as witnesses. Gouraige and Leib
may have concluded that Thomas’ and DeMuro’s
testimony would hurt Pergler. These two potential
witnesses may have testified that Pergler ignored
their advice, declined to resolve the billing
issues before submitting claims to Medicare or
knowingly defrauded Medicare. Pergler fails to
overcome our presumption that his trial counsel
followed a sound strategy.
As to the cross-examination of Medicare expert
Nicholson, Pergler argues that an exchange
between his trial counsel and the court proves
that his attorneys tailored their representation
to respond to a conflict of interest and that
their actions hurt Pergler’s defense. During the
government’s direct examination, Nicholson
testified that he believed that DeMuro took his
advice more seriously than Pergler and the other
conference call participants. Pergler’s counsel
asked the court to strike this part of
Nicholson’s testimony. They argued that their
cross-examination of Nicholson on this point
might require them to call DeMuro to testify
about the conference call. The court refused to
strike the testimony. Pergler’s counsel concluded
Nicholson’s cross-examination without asking
about the basis behind Nicholson’s perception.
It is not at all clear that the defense team’s
decision to truncate cross-examination
constituted deficient representation caused by a
conflict. First, it is unclear that Nicholson’s
cross-examination would require the defense to
call DeMuro at all. There were three other
participants in the conference call besides
DeMuro and Nicholson, any of whom could have
testified. Second, it is not clear how the
claimed conflict of interest would have come into
play since the defense team would be questioning
Pergler on direct examination. Further, Pergler’s
attorneys declined the court’s offers to require
more of Nicholson. The court offered to strike
Nicholson’s testimony if Nicholson had no
concrete basis for his opinion. It also offered
to have the government further explore the basis
for Nicholson’s opinion. The defense took
advantage of neither option.
It is not clear from the record why Pergler’s
trial counsel opted not to question Nicholson
about the basis for his opinion. It is clear,
however, that Pergler’s counsel had several
options for proceeding that would not cause a
conflict of interest. We will not guess at
defense counsel’s reasons for structuring
Nicholson’s cross-examination as they did./1 The
evidence that Pergler marshals is not strong
enough to overcome our presumption that his
counsel acted adequately.
Even if we assume Gouraige and Leib acted
deficiently, Pergler fails to show that their
decision not to call DeMuro and Thomas and to cut
short Nicholson’s cross-examination prejudiced
his case. To demonstrate prejudice, Pergler must
show that "there is a reasonable probability
that, but for counsel’s unprofessional errors,
the result of the proceeding would have been
different." Strickland, 466 U.S. at 694. It is
insufficient for Pergler to show merely that "the
errors had some conceivable effect on the outcome
of the proceeding." Id. at 693. Pergler does not
offer any evidence that Thomas or DeMuro would
have provided exculpatory information or that
Nicholson’s testimony was key to his conviction.
Pergler fails to demonstrate that his attorneys’
three decisions changed the outcome of his case.
III. Conclusion
In the absence of a 28 U.S.C. sec. 2255 record
it is not our function to engage in speculation.
We AFFIRM the district court’s decision.
FOOTNOTE
/1 Trial lawyers quickly learn that it is manifestly
unwise to ask cross-examination questions in two
situations: (1) when the answer will be damaging
(2) when the answer is unknown. We have no reason
to doubt that Pergler’s attorneys were following
this sage lesson when they declined to question
Nicholson about the basis for his beliefs.
Williams, Circuit Judge, dissenting. In my view,
the majority opinion mischaracterizes the claims
Richard Pergler raises in this appeal. With
respect to nearly all of Pergler’s claims,
however, these mischaracterizations are harmless
because all but one of Pergler’s claims are
without merit. But, with respect to Pergler’s
claim that his trial attorneys rendered
constitutionally ineffective assistance of
counsel by restricting their cross-examination of
Ron Nicholson, I believe these
mischaracterizations lead the majority to reach
a conclusion that is erroneous. Accordingly, I
dissent.
* * *
The majority opinion mischaracterizes Pergler’s
claims in two ways. First, it treats all but one
of Pergler’s claims as ordinary ineffective
assistance of counsel claims despite the fact
that both Pergler and the government view all of
Pergler’s claims as conflict of interest claims
and each of Pergler’s claims involves an
allegation that his trial attorneys did not
pursue an opportunity to bolster Pergler’s
defense because of a conflict of interest.
Second, the majority opinion does not accurately
describe Pergler’s precise claims on appeal--that
his trial lawyers labored under a conflict of
interest that caused them: (1) to refrain from
pursuing an advice of counsel defense; (2) to
truncate Ron Nicholson’s cross-examination; (3)
to not call Joy Thomas to testify as to her
alleged belief that the Fempouch product was
reimbursable; and (4) to not call Paul DeMuro to
testify as to when Pergler sought guidance on the
legality of his actions.
Applying the special standards governing
conflict of interest claims to the four precise
claims Pergler raises requires an analysis very
different from the one employed in the majority
opinion. Before taking up Pergler’s precise
claims, however, I should set out my
understanding of how this court reviews conflict
of interest claims. As the majority opinion
rightly notes, the standard of proof for a
defendant who claims that he or she received
ineffective assistance of counsel because his or
her attorney labored under a conflict of interest
depends on whether the conflict was brought to
the trial judge’s attention. Cuyler v. Sullivan,
446 U.S. 335, 345-50 (1980); Holloway v.
Arkansas, 435 U.S. 475, 484-85 (1978). If the
trial judge was made aware of, otherwise knew of,
or reasonably should have known of a potential
conflict, the defendant need only establish that
the trial judge failed to adequately inquire into
the conflict (inadequate inquiry) and that the
conflict might have had an adverse effect on
counsel’s performance (possible prejudice).
Spreitzer v. Peters, 114 F.3d 1435, 1450 (7th
Cir. 1997); United States v. Fish, 34 F.3d 488,
492 (7th Cir. 1994). If the trial judge was not
on notice regarding a potential conflict, the
defendant must establish that counsel actively
represented conflicting interests (actual
conflict of interest) and that the conflict
adversely affected counsel’s performance (actual
prejudice). Spreitzer, 114 F.3d at 1450; Fish, 34
F.3d at 492.
Even properly characterized, Pergler’s first,
third, and fourth claims are ultimately without
merit. As such, it is not necessary to
exhaustively analyze those claims. For
completeness sake, however, I will address them
briefly. Pergler’s first claim--that his trial
attorneys did not pursue an advice of counsel
defense because of a conflict of interest--must
be judged under the inadequate inquiry/ possible
prejudice standard as there is no dispute that
the parties raised the possibility of such a
conflict of interest to the district court.
Pergler cannot satisfy this standard, however,
because the district court adequately inquired
into the conflict and obtained a valid waiver of
the conflict from Pergler. See, e.g., United
States v. Flores, 5 F.3d 1070, 1078-79 (7th Cir.
1993); United States v. Lowry, 971 F.2d 55, 59-64
(7th Cir. 1992). Pergler’s third and fourth
claims--that his trial attorneys did not call Joy
Thomas or Paul DeMuro to provide certain
important evidence--do not involve conflicts that
were brought to the district court’s attention
and, therefore, must be considered under the
actual conflict/actual prejudice standard. Under
this standard, Pergler’s third and fourth claims
must fail because there is inadequate evidence in
the limited record available to determine whether
the alleged conflicts of interest adversely
affected the performance of Pergler’s trial
attorneys; in particular, nothing in the record
establishes that an unconflicted attorney would
have called either Thomas or DeMuro. See, e.g.,
United States v. Cirrincione, 780 F.2d 620, 628-
31 (7th Cir. 1985).
Pergler’s second claim has considerably more
merit than his other three claims. His second
claim arises out of the decision of his trial
attorneys to cut short their cross-examination of
Ron Nicholson. As the majority opinion notes,
Nicholson testified for the government that,
during a conference call regarding whether the
Fempouch product was reimbursable, Paul DeMuro
took more seriously than Pergler and the other
participants in the conference call Nicholson’s
suggestion that the parties present the product
to Medicare authorities. Pergler’s trial
attorneys wanted to rebut Nicholson’s testimony,
but informed the district court that they felt
they could not do so because any questioning
about the basis for his statement "puts Latham &
Watkins in a difficult situation," and calling
DeMuro to provide rebuttal testimony could not be
done "without raising a serious disqualification
issue." Pergler’s trial attorneys therefore stuck
with their request that the problematic portion
of Nicholson’s testimony simply be struck, but
the district court refused. Pergler now claims
that his trial attorneys did not rebut
Nicholson’s testimony because they labored under
a conflict of interest.
The first matter that must be addressed is the
government’s argument, echoed in the majority
opinion, that the decision by Pergler’s attorneys
to cut short their cross-examination of Nicholson
does not even present a potential conflict of
interest. The government and the majority opinion
suggest that Nicholson’s testimony raises no
conflict of interest problem because: (1)
Pergler’s attorneys were given the opportunity to
request that a foundation be laid for Nicholson’s
testimony; (2) DeMuro would have been subject to
direct examination, not cross-examination, from
his colleagues; and (3) there were participants
in the conference call other than DeMuro who
could have testified. All of this is beside the
point, however. Regardless of how it was to be
accomplished, through further questioning of
Nicholson, direct testimony from DeMuro, or
testimony from other witnesses, Pergler’s trial
attorneys were left, possibly, with the task of
establishing that their colleague was not
particularly concerned about presenting the
Fempouch product to Medicare authorities for a
reimbursability determination. In light of this
possibility, I can only conclude that a potential
conflict of interest did exist.
The next question, then, is whether the trial
court was on notice of this potential conflict.
It is clear that the court was, or at least
should have been. Pergler’s attorneys all but
told the judge that because of their obligations
to Latham & Watkins they would not be pursuing a
possibly fruitful line of cross-examination. They
explained that any questioning about the basis
for Nicholson’s testimony regarding the
seriousness with which DeMuro took Nicholson’s
advice "puts Latham & Watkins in a difficult
situation." And, they asserted that calling
DeMuro to provide rebuttal testimony could not be
done "without raising a serious disqualification
issue." The district court clearly was on notice
that there might be a conflict of interest
problem related to the ability of Pergler’s
attorneys to rebut Nicholson’s testimony.
As the district court was on notice of this
potential conflict, the inadequate
inquiry/possible prejudice standard governs
Pergler’s claim that his representation suffered
because of that conflict. Considering the
inadequate inquiry requirement first, the
question is whether the district court
sufficiently probed the potential conflict to
determine if there was a possibility that it
might ripen into an actual conflict or otherwise
took steps to address any possible conflict.
Fish, 34 F.3d at 492-94; United States v. Levy,
25 F.3d 146, 153 (2d Cir. 1994). The district
court conducted no inquiry whatsoever. Moreover,
the district court did not disqualify counsel or
obtain a waiver of the conflict from Pergler. Put
simply, the district court’s inquiry into the
potential conflict of interest behind the
decision of Pergler’s trial attorneys to cut
short their cross-examination of Nicholson was
inadequate.
As for whether this potential conflict of
interest created a possibility of prejudice, the
issue is whether the conflict might have had an
adverse effect on the performance of Pergler’s
trial attorneys. Spreitzer, 114 F.3d at 1450;
United States v. Horton, 845 F.2d 1414, 1418 (7th
Cir. 1988). I think it might have. As noted
above, there is a quite plausible argument that
Pergler’s trial attorneys did not pursue a more
extensive cross-examination of Nicholson because
of a conflict of interest. And, it is possible
that there is evidence indicating that DeMuro did
not take all that seriously Nicholson’s advice
about presenting the Fempouch product to Medicare
authorities, which could have been used both to
undermine Nicholson’s credibility and to bolster
Pergler’s good faith defense. Accordingly, I
firmly believe that an unconflicted counsel would
have presented such evidence, assuming it was
available. As such, I can only conclude that
there does exist a possibility that prejudice
might have resulted from the conflict of interest
that allegedly caused Pergler’s trial attorneys
to truncate Nicholson’s cross-examination.
For the foregoing reasons, I believe Pergler
has established that his trial attorneys rendered
ineffective assistance of counsel. On that basis,
I would reverse his conviction.