Charles I. Covey v. United States ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
________________
No. 02-3332
_____________
Charles I. Covey, *
*
Petitioner-Appellant, *
* Appeal from the United States
v. * District Court for the Western
* District of Missouri.
United States of America, *
*
Respondent-Appellee. *
*
*
*
_____________
Submitted: January 15, 2004
Filed: July 30, 2004
_____________
Before MELLOY, BRIGHT, and HANSEN, Circuit Judges.
_____________
MELLOY, Circuit Judge.
Petitioner-Appellant Charles Covey brings this action to vacate, set aside, or
correct his sentence pursuant to 28 U.S.C. § 2255. The district court1 denied his
motion, and we granted a certificate of appealability on the issue of whether counsel’s
1
The Honorable Gary A. Fenner, United States District Judge for the Western
District of Missouri.
alleged conflict of interest rendered his assistance ineffective in violation of Mr.
Covey’s Sixth Amendment right to counsel. For the reasons stated herein, we affirm
the district court’s decision.
I. BACKGROUND2
In 1999, a jury convicted Mr. Covey of conspiracy to commit money
laundering and aiding and abetting money laundering in violation of 18 U.S.C. §§
1956(a)(1)(B)(i), 1956(h), and 1956(a)(2). The district court entered preliminary
judgment on the forfeiture count in the amount of $70,000 pursuant to 18 U.S.C. §
982, denied Mr. Covey’s post-trial motions, sentenced Mr. Covey to fifty-seven
months imprisonment, and fined Mr. Covey $19,118.44. Mr. Covey appealed his
conviction and the preliminary order of forfeiture. In United States v. Covey, 232
F.3d 641 (8th Cir. 2000) (Covey I), we affirmed the district court’s judgment and
dismissed the forfeiture appeal as premature.
Mr. Covey was a certified public accountant, and he owned a corporation that
specialized in making high risk loans. His conviction arose out of a loan he made to
drug traffickers, Gary and Darrell Hart. The Harts were brothers and aspired to open
a motorcycle business. The Harts had ample cash derived from their illegal drug
activities to fund the business. However, federal law requires that certain cash
transactions be reported to federal authorities. In order to disguise the source of
funding for the motorcycle business, the Harts entered into an agreement with Mr.
Covey. Through his corporation, Mr. Covey loaned the Harts $50,000 in exchange
for a $70,000 cash payment. Mr. Covey and the Harts agreed that $10,000 of the loan
was an origination fee, another $10,000 was collateral for interest on the loan, and the
2
Portions of this background discussion are taken directly from this panel’s
earlier decision, United States v. Covey, 232 F.3d 641 (8th Cir. 2000) (Covey I),
without specific attribution.
-2-
remaining $50,000 was collateral on the principal. The loan agreement
documentation did not express these terms, however. Instead, the documentation
represented that the Harts’ motorcycle business inventory was to be collateral for the
loan, even though the inventory did not yet exist. Furthermore, Mr. Covey did not
take a security interest in the later-acquired inventory.
The Harts transferred the $70,000 cash payment for the loan to Mr. Covey in
a restaurant parking lot. This large sum of cash was bound by rubber bands and was
delivered to Mr. Covey in a paper bag. In keeping with the loan agreement, the Harts
made monthly payments on the loan. However, their business failed, and after only
six months, they ceased making payments. Consequently, Mr. Covey began taking
payments from the cash collateral.
At some point, Mr. Covey contacted a lawyer about concluding the loan. Mr.
Covey’s attorney advised him to deposit the remaining principal in Mr. Covey’s
corporate account and to return the excess collateral to the Harts. Mr. Covey
attempted to return the excess collateral by mail, but the Harts suspected that they
were under investigation and that Mr. Covey was cooperating with law enforcement.
Therefore, they refused to retrieve their mail. In addition, counsel advised Mr. Covey
to belatedly file the proper federal form, Internal Revenue Service Form 8300, to
report his receipt of over $10,000 in cash. Mr. Covey complied and checked the
“suspicious transaction” box on the federal form. A federal grand jury returned a
superseding indictment in August of 1999, charging Mr. Covey with money
laundering offenses arising out of these facts.
At trial, Mr. Covey sought to establish the legitimacy of the Harts’ loan, and
he testified to this effect. In returning a guilty verdict, the jury rejected his testimony.
In this § 2255 petition, Mr. Covey alleges that trial counsel rendered ineffective
assistance because counsel had a conflict of interest. Because trial counsel advised
Mr. Covey how to conclude the loan, Mr. Covey claims that an advice-of-counsel
-3-
defense should have been presented to the jury to rebut the government’s attempt to
paint his actions in concluding the loan as criminal. The government disagrees that
a conflict of interest existed and contends that, even assuming a conflict did exist, it
did not adversely affect the proceedings. The district court rejected Mr. Covey’s
arguments and found that, even if Mr. Covey’s trial attorney had a conflict, Mr.
Covey waived his right to be represented by conflict-free counsel.
II. DISCUSSION
A district court’s decision in a habeas claim of ineffective assistance of counsel
presents a mixed question of law and fact. Laws v. Armontrout, 863 F.2d 1377, 1381
(8th Cir. 1988) (en banc). We review the ineffective assistance issue de novo, but
findings of underlying predicate facts are reviewed for clear error. Id.; accord Lynn
v. United States, 365 F.3d 1225, 1232 (11th Cir. 2004) (“In a Section 2255
proceeding, we review legal issues de novo and factual findings under a clear error
standard.” (quoting United States v. Walker, 198 F.3d 811, 813 (11th Cir. 1999))).
The Supreme Court has long-recognized the critical role that assistance of
counsel plays in protecting the Sixth Amendment’s guarantee of a fair trial. See
Strickland v. Washington, 466 U.S. 668, 685 (1984). “Unless a defendant charged
with a serious offense has counsel able to invoke the procedural and substantive
safeguards that distinguish our system of justice, a serious risk of injustice infects the
trial itself.” Cuyler v. Sullivan, 446 U.S. 335, 343 (1980). “For that reason, the Court
has recognized that ‘the right to counsel is the right to the effective assistance of
counsel.’” Strickland, 466 U.S. at 686 (quoting McMann v. Richardson, 397 U.S.
759, 771 n.14 (1970)). This right “embraces the right to conflict-free counsel.”
Dawan v. Lockhart, 31 F.3d 718, 720-21 (8th Cir. 1994).
An ineffective-assistance claim generally requires two showings. “First, the
defendant must show that counsel’s performance was deficient.” Strickland, 466 U.S.
-4-
at 687. This entails “showing that counsel made errors so serious that counsel was
not functioning as the ‘counsel’ guaranteed the defendant by the Sixth Amendment.”
Id. Second, the defendant must show prejudice. Id. To show prejudice, he or she
must prove that “counsel’s errors were so serious as to deprive [him or her] of a fair
trial, a trial whose result is reliable.” Id.; accord Lockhart v. Fretwell, 506 U.S. 364,
372 (1993) (admonishing that the prejudice prong encompasses more than mere
outcome determination; rather, the focus of the question of prejudice is “whether
counsel’s deficient performance renders the result of the trial unreliable or the
proceeding fundamentally unfair”).
However, there are three classes of ineffective-assistance claims, described in
Strickland, in which we presume prejudice rather than require a defendant to
demonstrate it. See Strickland, 466 U.S. at 692. One such class encompasses
ineffective-assistance claims where counsel labored under an actual conflict of
interest. Id. In Cuyler v. Sullivan, the Supreme Court held that if a defendant who
raised no objection at trial can show “an actual conflict of interest [that] adversely
affected his lawyer’s performance,” prejudice may be presumed. 446 U.S. at 348.
The Supreme Court recently noted that some circuits have “unblinkingly”
applied Cuyler to “all kinds of alleged attorney ethical conflicts.” Mickens v. Taylor,
535 U.S. 162, 174-75 (2002) (citation and quotation omitted) (collecting cases). The
Court made clear, however, that it had never extended the Cuyler standard to conflicts
other than those arising from joint representation at trial. Id. Mickens itself involved
a successive representation conflict, and the Court assumed that the case properly
proceeded under Cuyler in the lower courts. Id. The Court cautioned, however, that
its decision should not be misconstrued as extending the Cuyler rule to conflicts other
than joint representation: “In resolving this case on the grounds on which it was
presented to us, we do not rule upon the need for the [Cuyler] prophylaxis in cases
of successive representation. Whether [Cuyler] should be extended to such cases
remains, as far as the jurisprudence of this Court is concerned, an open question.” Id.
at 176.
-5-
The parties have proceeded under the assumption that the Cuyler standard
applies to the conflict alleged by Mr. Covey. This is so even though Mr. Covey does
not allege a conflict arising out of multiple or successive representation. Instead, he
argues that his lawyer gave him faulty advice concerning how to properly “wind up”
the Harts’ loan. Mr. Covey argues that the government painted his actions in
complying with counsel’s advice as evidence of criminal behavior. Therefore, he
contends that either he or his lawyer should have been able to testify as to this pre-
indictment advice to show the legitimacy of the Harts’ loan and Mr. Covey’s actions.
Mr. Covey claims that he could not present such testimony without waiving the
attorney-client privilege, and his lawyer was ethically precluded from acting as an
advocate-witness. Moreover, Mr. Covey contends that his lawyer had an interest in
preventing such testimony to cover up the allegedly incompetent nature of the advice.
In this circuit, it is unclear whether we limit application of Cuyler to conflicts
involving multiple or serial representation. See Wemark v. Iowa, 322 F.3d 1018,
1021 (8th Cir. 2003) (“We have not yet clarified whether Cuyler’s presumed
prejudice analysis extends beyond such circumstances to all conflict of interest
cases.”); United States v. Young, 315 F.3d 911, 914 n.5 (8th Cir. 2003) (stating, in
dicta, application of Cuyler is limited to multiple and serial representation conflicts);
Caban v. United States, 281 F.3d 778, 783 (8th Cir. 2002) (distinguishing as dicta
previous statements in Eighth Circuit caselaw that Cuyler applies to all conflict of
interest cases) (citing Koste v. Dormire, 260 F.3d 872, 879 (8th Cir. 2001); Atley v.
Ault, 191 F.3d 865, 870 n.4 (8th Cir. 1999)). In Atley, we indicated that the Cuyler
rule should be applied more broadly. Atley, 191 F.3d at 870 n.4. In Young, however,
we observed, “‘[W]here the alleged conflict involves ethical issues other than
multiple or serial representation, this Circuit has held that Strickland is still the
appropriate standard.” Young, 315 F.3d at 914 n.5. Like the court in Caban, “we
need not create even the appearance of a conflict with our prior statement because we
need not choose between the Strickland and Cuyler standards in the present case.”
-6-
Caban, 281 F.3d at 783. Under either rule, Mr. Covey’s ineffective-assistance-of-
counsel claim fails.
For purposes of our Cuyler analysis, we will assume that Mr. Covey’s trial
counsel labored under a conflict of interest. See United States v. Merlino, 349 F.3d
144, 152 (3d Cir. 2003) (finding actual conflict where government used attorney’s
trips to prison to meet with client as evidence of client’s consciousness of guilt,
because attorney could have been called as witness to rebut such inference). Because
Mr. Covey did not lodge an objection to the conflict at trial and because he does not
allege the type of conflict that would obligate the trial judge to initiate an inquiry into
the conflict, Cuyler requires that Mr. Covey demonstrate that the conflict adversely
affected his lawyer’s performance.3 Cuyler, 446 U.S. at 348. Mr. Covey has failed
to do this.
“Adverse effect” is not the equivalent of prejudice. Id. at 349-50. To
demonstrate adverse effect, Mr. Covey must identify “some actual and demonstrable
adverse effect on the case, not merely an abstract or theoretical one.” United States
v. Flynn, 87 F.3d 996, 1001 (8th Cir. 1996). “‘Effect on representation’ mean[s] that
the conflict caused the attorney’s choice, not that the choice was prejudicial in any
other way.” McFarland v. Yukins, 356 F.3d 688, 705 (6th Cir. 2004). Thus, the
3
Historically, we characterized the Cuyler standard as requiring, one, a showing
of an actual conflict, and two, a showing that the conflict adversely affected the
lawyer’s representation. See, e.g., Johnson v. Norris, 207 F.3d 515, 519 (8th Cir.
2000) (“[T]he petitioner must prove both that his attorney acted under an actual
conflict of interest, as opposed to just a potential one, and that the conflict of interest
actually affected the adequacy of the representation.”) (internal citations omitted).
The Supreme Court in Mickens, however, clarified that the term “actual conflict”
embraces both the cause and effect elements of Cuyler. Mickens, 535 U.S. at 172 n.5.
The Court stated, “[T]he [Cuyler] standard is not properly read as requiring inquiry
into actual conflict as something separate and apart from adverse effect. An ‘actual
conflict,’ for Sixth Amendment purposes, is a conflict of interest that adversely
affects counsel’s performance.” Id.
-7-
question we must answer in this case is whether Mr. Covey’s counsel’s alleged
conflict affected his choice not to present an advice-of-counsel defense to rebut the
government’s allegation that Mr. Covey’s actions in concluding the Harts’ loan were
evidence of his guilt.
The Fourth Circuit requires defendants urging an ineffective-assistance claim
based on conflict of interest to “identify a plausible alternative defense strategy or
tactic that [their] defense counsel might have pursued,” “show that the alternative
strategy was objectively reasonable under the facts of the case,” and “establish that
the defense counsel’s failure to pursue that strategy or tactic was linked to the actual
conflict.” Mickens v. Taylor, 240 F.3d 348, 361 (4th Cir. 2001) (en banc), aff’d, 535
U.S. 162 (2002). Mr. Covey has identified reliance on the advice of counsel as the
alternative defense strategy, but he cannot show that this strategy was objectively
reasonable given the evidence that a defendant must put forth in order to assert it.
The district court properly recognized that reliance on the advice of counsel
requires independent evidence “showing (1) [the defendant] made full disclosure of
all material facts to his [or her] attorney before receiving the advice at issue; and (2)
he [or she] relied in good faith on the counsel’s advice that his [or her] course of
conduct was legal.” United States v. DeFries, 129 F.3d 1293, 1308 (D.C. Cir. 1997)
(per curiam); accord United States v. Petrie, 302 F.3d 1280, 1287 (11th Cir. 2002)
(“The evidentiary predicate for this defense is that the defendant ‘fully disclosed all
material facts to his attorney’ and ‘relied in good faith on the advice given by his
attorney.’”) (citations omitted); United States v. Butler, 211 F.3d 826, 833 (4th Cir.
2000) (requiring full disclosure of all pertinent facts to counsel and good faith
reliance on counsel’s advice in order to invoke such reliance as a defense); United
States v. Lindo, 18 F.3d 353, 356 (6th Cir. 1994) (same). There was significant
evidence at trial that, from the inception of the loan, Mr. Covey knew that the Harts
intended to launder drug proceeds. The Harts testified that they informed Mr. Covey
that the money used for the loan transaction was derived from the sale of marijuana.
Other evidence of Mr. Covey’s knowledge of the illegal nature of the loan included
-8-
the unusually high expected return on the loan (37%); the exchange of $1000 stacks
of cash, bound in rubber bands in a paper bag; the misrepresentation of collateral on
the loan agreement that indicated the Harts’ motorcycle inventory was collateral even
though, at the time the loan was made, they had no inventory; and Mr. Covey’s failure
to file a Form 8300 at the time the loan was made to indicate his receipt of currency
in excess of $10,000.
In short, all the evidence in this case (apart from Mr. Covey’s self-serving
testimony) indicates that Mr. Covey was well aware of the illegality of the loan to the
Harts. To assert good faith reliance on his trial counsel’s advice, Mr. Covey would
had to have introduced evidence that he disclosed this knowledge to his counsel, and
this evidence would have been damning. Clearly, reliance on counsel’s advice would
not have been objectively reasonable under the facts of Mr. Covey’s case.
Consequently, counsel’s alleged conflict did not adversely affect his decision to
forego the advice-of-counsel defense. See Mickens, 240 F.3d at 360. Mr. Covey,
therefore, was not denied the effective assistance of counsel under Cuyler.
For these same reasons, Mr. Covey was not prejudiced within the meaning of
Strickland, nor was his attorney’s performance deficient. See Strickland, 466 U.S.
at 687. “In assessing counsel’s performance, courts defer to reasonable trial strategies
and ‘indulge a strong presumption that counsel’s conduct falls within the wide range
of reasonable professional assistance.’” Blankenship v. United States, 159 F.3d 336,
338 (8th Cir. 1998) (quoting Strickland, 466 U.S. at 689). A showing of prejudice
requires a determination by the court that “‘there is a reasonable probability
[sufficient to undermine confidence in the outcome] that, but for counsel’s
unprofessional errors, the result of the proceeding would have been different.’” Id.
(alteration in original) (quoting Strickland, 466 U.S. at 694). Even absent the conflict
of interest, assuming it existed, the government presented ample evidence that Mr.
Covey was guilty of money laundering offenses. Moreover, the vast majority of the
evidence against Mr. Covey predates the conflict of interest that he alleges resulted
in ineffective assistance of counsel. See discussion supra. Because of this ample
evidence of guilt, the result of Mr. Covey’s trial is reliable and will not be disturbed.
-9-
Finally, we conclude that the district court did not abuse its discretion in ruling
without an evidentiary hearing, because the record included all of the information
necessary for the court to rule on the motion. Rogers v. United States, 1 F.3d 697,
699 (8th Cir. 1993) (per curiam) (standard for whether hearing is necessary); Widgery
v. United States, 796 F.2d 223, 224 (8th Cir. 1986) (standard of review).
Accordingly, we affirm.
______________________________
-10-