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United States v. Kiley

United States District Court, D. Minnesota

June 8, 2017

United States of America, Plaintiff/Respondent,
v.
Patrick Joseph Kiley, Defendant/Petitioner.

          David J. MacLaughlin and Tracy L. Perzel, Assistant United States Attorneys, Counsel for Respondent.

          John W. Lundquist and Kevin C. Riach, Fredrikson & Byron, P.A., Counsel for Petitioner Patrick Kiley.

          MEMORANDUM OPINION AND ORDER

          Michael J. Davis United States District Court

         This matter is before the Court upon Petitioner Patrick Kiley's Motion to Vacate, Set Aside, or Correct his Sentence pursuant to 28 U.S.C. § 2255.

         In order to be entitled to the relief sought in this petition, Kiley must demonstrate that 1) his trial counsel had an actual conflict of interest; and 2) that such conflict adversely affected his performance at trial. For the reasons stated below, the Court finds that Kiley has failed to meet this burden.

         I. Introduction

         Following an eight week trial, Patrick Kiley was found guilty of multiple counts of wire fraud, mail fraud, money laundering and conspiracy to commit wire and mail fraud. These convictions arose from a Ponzi scheme that operated between July 2006 and July 2009, in which Kiley and others received over $193 million from hundreds of investors. The evidence presented at trial demonstrated that Kiley and others defrauded victims by convincing them to invest their money in a sham currency program. For his part, Kiley had a radio show called “Follow the Money” during which he embellished his financial background and promoted the currency program to his listeners. Through this show, Kiley successfully recruited a number of investors in the currency program by assuring them their money would be kept in a separate account and that they would be able to get their money back at any time. The evidence at trial also demonstrated that Kiley attended many meetings with co-conspirators and that he had direct control over bank accounts in the name of Crown Forex LLC and Basel Group LLC; each of which held millions of dollars of victim funds.

         II. Procedural History

         A. Motion for Inquiry

         Prior to trial, the government filed a motion for inquiry, asking the Court to inquire as to whether Kiley's defense counsel, H. Nasif Mahmoud, may be a necessary witness at trial and whether Mahmoud had an actual or potential conflict of interest with one former client and one current client. [Doc. No. 80] In addition, if the circumstances warranted, the government requested that the Court secure appropriate waivers of the conflict or issue an order of disqualification. The matter was referred to the Magistrate Judge for hearing.

         In the motion to inquire, the government asserted that during a pretrial phone conference, Mahmoud informed the government that he flew to Minneapolis in July 2009, at Kiley's request, to attend a number of meetings with co-conspirator Trevor Cook[1], Kiley and various attorneys to discuss the Phillips lawsuit[2]. He further informed the government that while in Minneapolis, he had stayed at the Van Dusen mansion, which was the locus of the fraudulent activity charged in the Indictment. He also stated that Cook specifically told him that Cook initiated the wire transfer that was the subject of the money laundering asserted in Count 23, and that Mahmoud was the recipient of such funds. Based on that information, the government raised the concern that Mahmoud may have to be a witness at trial.

         Following the hearing on the government's motion, the Magistrate Judge found that it was “undisputed that the attorney referenced in Count [23] is Mr. Mahmoud, whom Defendant Kiley had retained in a related civil action” and that there were other attorneys present at the meetings at the Van Dusen mansion who could testify as to what happened. Based on the submissions of the parties, the Magistrate Judge was satisfied that Mahmoud had a trial strategy without having to rely on his own testimony. The Magistrate Judge thus recommended that Mahmoud need not be disqualified on the basis that he would be a witness at trial.

         The government also raised the concern that Mahmoud's relationship with a former client created a conflict requiring disqualification. In 2005, Mahmoud represented Duke Thietje for the purpose of creating a foreign trust; legal work unrelated to Kiley or the charged Ponzi scheme. Through the course of this representation, Thietje made certain disclosures to Mahmoud regarding his financial and employment situation. The attorney/client relationship ceased after a fee dispute.

         Duke Thietje was also an early investor in the currency program promoted by Cook and Kiley. Thietje's initial $300, 000 investment was placed with a large currency trading firm called Refco, Inc. One week after this investment was placed, Refco declared bankruptcy. Subsequent to the bankruptcy, Thietje repeatedly made inquiries of Kiley as to the status of his investment. Ultimately, when Thietje was not able to get his money back, he sued Kiley in state court. Based on Thietje's experience with the currency program, the government informed the parties that it intended to call Thietje as a key witness in its case in chief against Kiley.

         In determining whether Mahmoud should be disqualified from representing Kiley in light of his prior relationship with Thietje, the Magistrate Judge looked at whether privileged attorney/client information may be implicated in the course of Mahmoud's cross-examination of Thietje. The Magistrate Judge found that it was likely such privileged information could be implicated, and that a conflict existed. The Magistrate Judge further found that the conflict was not severe, that the attorney/client relationship ended years before Kiley became Mahmoud's client and that when the Kiley/Mahmoud attorney/client relationship commenced, Thietje was no longer investing with Cook or Kiley.

         The Magistrate Judge then inquired of Kiley as to whether he would waive the conflict of interest between Mahmoud and Thietje. On the record, Kiley provided an unequivocal waiver of any conflict of interest and stated that he wanted Mahmoud to continue as his attorney. Based on this waiver, the Magistrate Judge recommended that disqualification was not necessary based on a conflict of interest involving Duke Thietje, noting that co-counsel could cross- examine Thietje at trial.

         The Magistrate Judge also addressed the question of a conflict of interest arising from Mahmoud's prior as well as current representation of Stephen Nortier. The government asserted that Nortier had information adverse to Kiley based on Nortier's prior relationship with Kiley when he was hired to secure radio air time for Kiley's radio program. The government asserted that during that relationship, Nortier's business created the website www.patkiley.com, and that the website contained false claims about Kiley's qualifications as an investment advisor and about the safe and secure nature of the currency program Kiley promoted. If called as a witness at trial, the government asserted that Nortier would testify that Kiley was the source of this false information.

         In response, Mahmoud asserted that Nortier would provide a waiver indicating that he had no objection to Mahmoud representing Kiley at trial or that Mahmoud could cross-examine him[3]. He further argued that Nortier did not create Kiley's website.

         The Magistrate Judge found that with respect to Nortier, a conflict of interest existed, and advised Kiley of his right to separate and independent counsel free from any conflict of interest that may arise from Mahmoud's representation of Nortier, and explained the difficulties his counsel may have in representing both Kiley and Nortier. On the record, Kiley again stated his unequivocal waiver of any conflict of interest and that he wanted Mahmoud to be his attorney.

         In a Report and Recommendation dated November 10, 2011, the Magistrate Judge recommended that Mahmoud not be disqualified at that time. Neither party objected to the Magistrate Judge's recommendation and this Court adopted the Report and issued an Order finding that Mahmoud would not be disqualified.

         B. Post Conviction

         Kiley was sentenced on July 16, 2013 to a term of imprisonment of 240 months: 180 months on Counts 1 through 13 to be served concurrently; and 60 months on Counts 22 and 23 to be served concurrently, but consecutive to the term of imprisonment for Counts 1 through 13. The sentence was a downward variance from the applicable guideline range of life imprisonment.

         On appeal, the Eighth Circuit affirmed Kiley's conviction and sentence. United States v. Beckman et al., 787 F.3d 466, 488 (8th Cir. 2015) reh'g denied (Jun. 17, 2015) and reh'g and reh'g en banc denied (Jun. 17, 2015). One argument Kiley raised on appeal was whether he was denied effective assistance of counsel on the basis that trial counsel labored under multiple conflicts of interest while representing him. Kiley argued that despite the pretrial hearing on the government's motion to inquire and Kiley's unequivocal waiver, the Court nonetheless erred by not considering the conflict inherent in Count 23 - that Kiley was convicted of a crime that implicated Mahmoud. Id. 787 F.3d at 488.

         Kiley argued that at trial, several witnesses testified as to Mahmoud's receipt of the charged wire transfer, and that Mahmoud even referred to himself in the first person when questioning Kiley's administrative assistant. Kiley argued the potential conflict regarding Count 23 was so obvious that the Court should have investigated the matter whether or not Mahmoud raised it on Kiley's behalf and that such conflict was so grave it violated Kiley's Fifth Amendment right to due process. Id. at 489. The Eighth Circuit disagreed.

In this case, the district court relied on (1) Mahmoud's assurance that no conflict existed and his adamant response to the government's motion for inquiry and (2) Kiley's clear statement to the magistrate judge he wanted Mahmoud to represent him-“I want to keep Mr. Mahmoud.” Unlike Wood, the government's motion for inquiry did not apprise the district court of the Count 23 issue Kiley now raises. We therefore reject Kiley's due process challenge raised under the Fifth Amendment, and we find the district court was not required to address sua sponte the potential Count 23 conflict in the midst of this complex and lengthy trial.

Id. at 490.

         With respect to Kiley's ineffective assistance of counsel claim, the Eighth Circuit noted that the district court had not heard arguments about the inherent conflict in Count 23, and because Kiley had to show that the alleged conflict of interest had an adverse effect on counsel's performance, the court declined to address it on direct appeal. Id. “Whether the alleged Count 23 conflict resulted in ineffective assistance by Mahmoud is more appropriately addressed in a § 2255 proceeding with the benefit of the fact-finding and appraisal by the trial judge, who is in a better position to assess Mahmoud's performance.” Id. On January 22, 2016, Kiley filed the instant habeas petition and on December 16, 2016, the Court held an evidentiary hearing and heard testimony from H. Nasif Mahmoud, Stephen Nortier and Robert Sicoli and admitted a number of exhibits.

         III. Standard of Review

         Under 28 U.S.C. § 2255, “[a] prisoner in custody under sentence . . . claiming the right to be released upon the ground that the sentence was imposed in violation of the Constitution or laws of the United States, or that the court was without jurisdiction to impose such sentence . . . or is otherwise subject to collateral attack, may move the court which imposed the sentence to vacate, set aside or correct the sentence.” 28 U.S.C. § 2255(a). Section 2255 is intended to provide federal prisoners a remedy for jurisdictional or constitutional errors. Sun Bear v. United States, 644 F.3d 700, 704 (8th Cir. 2011). It is not intended to be a substitute for appeal or to relitigate matters decided on appeal. See Bousley v. United States, 523 U.S. 614, 621 (1998); Davis v. United States, 417 U.S. 333, 346-47 (1974)).

Relief under 28 U.S.C. § 2255 is reserved for transgressions of constitutional rights and for a narrow range of injuries that could not have been raised on direct appeal and, if uncorrected, would result in a complete miscarriage of justice. A movant may not raise constitutional issues for the first time on collateral review without establishing both cause for the procedural default and actual prejudice resulting from the error.

United States v. Apfel, 97 F.3d 1074, 1076 (8th Cir. 1996) (citations omitted).

         IV. Claim of Actual Conflict of Interest

         In his petition, Kiley claims that his convictions should be vacated and set aside because his trial counsel labored under an actual conflict of interest that violated his constitutional right to effective assistance of counsel based on counsel's connections to the fraudulent currency program.

         A. Standard

         The right to counsel includes the right to representation that is free from conflicts of interest. Wood v. Georgia, 450 U.S. 261, 271 (1981). When counsel is burdened by an actual conflict of interest, “counsel breaches the duty of loyalty, perhaps the most basic of counsel's duties.” Strickland v. Washington, 466 U.S. 668, 692 (1984). An actual conflict of interest exists when the interests of the attorney and that of the client “diverge with respect to a material factual or legal issue or to a course of action.” United States v. Edelmann, 458 F.3d 791, 807 (8th Cir. 2006). To be entitled to relief, however, a defendant raising an ineffective assistance of counsel claim, who did not object to his attorney's conflict of interest at trial, “must demonstrate that an actual conflict of interest adversely affected his ...


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