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Gallagher v. United States

United States District Court, E.D. New York

June 26, 2018

DANIEL GALLAGHER, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.

          MEMORANDUM DECISION & ORDER

          BRIAN M COGAN U.S.D.J.

         1. Defendant pro se seeks habeas corpus relief under 28 U.S.C. § 2255 from his conviction, following a jury trial before the late Judge Leonard Wexler, on one count of securities fraud (15 U.S.C. §§ 78j(b), 78ff) and two counts of wire fraud (18 U.S.C. § 1343). Judge Wexler sentenced him to 31 months' custody and five years of supervised release. The Second Circuit affirmed, but because the statutory maximum period of supervised release was three years, it remanded with instructions to enter an amended judgment, which Judge Wexler did. United States v. Gallagher, 577 Fed.Appx. 30 (2d Cir. 2014).[1]

         2. The facts are integrated below to the extent necessary to discuss defendant's points of error, but to summarize, defendant was convicted of raising nearly $500, 000 from investors, and then using about 90% of the money for his personal expenses, including things like rent, boat fees, and burning (literally) $100 bills at a restaurant. His personal use of the money was undisputed at trial. His defenses were that the terms of the Operating Agreement allowed him to do that, that the investors did not care if he spent the money on himself even if he wasn't allowed to, and that given enough time, the investors would have made money on the investment or at least covered their losses. It was also proven that in all but a few instances (where he gave an incomplete picture), defendant failed to mention to investors that he had a badly blemished civil and administrative securities industry misconduct record prior to the raise, which several investors testified at trial would have been material to them (although at least one testified that he did not care about getting an incomplete picture). These facts refuted his defenses and made the case against him overwhelming.

         3. Defendant's argument on this motion is that he received ineffective assistance of trial counsel. Although he has attempted to break that argument into four separate points, they all converge into one: his counsel did not understand the case. According to defendant, this led to counsel not making the right arguments and not calling enough witnesses.

         4. Having compared the trial record to defendant's arguments, it is clear that trial counsel understood the case better than defendant.[2] In trying to come up with some defense against the awful facts, defense counsel, of necessity, pushed the jury right to the edge of the straight-face test, and actually found some purchase there, obtaining a protracted deliberation, an acquittal on one count, and the Government's withdrawal of two other counts when the jury deadlocked on them. Some of defendant's arguments on this motion, in contrast, have no reasonable basis, and others could not conceivably have changed the result absent an irrational jury.

         5. The onerous standard for proving ineffective assistance of counsel is hornbook law. A petitioner claiming ineffective assistance of counsel must prove two things. First, petitioner must prove that counsel's representation “fell below an objective standard of reasonableness” according to “prevailing professional norms.” Strickland v. Washington, 466 U.S. 668, 688 (1984). Second, petitioner must prove that “there is a reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different.” Id. at 694; see also Hill v. Lockhart, 474 U.S. 52, 58-60 (1985). In other words, petitioner “must show that the deficient performance prejudiced the defense.” Strickland, 466 U.S. at 687. “The decision not to call a particular witness is typically a question of trial strategy that [reviewing] courts are ill-suited to second-guess.” United States v. Luciano, 158 F.3d 655, 660 (2d Cir. 1998) (per curiam). Because courts are “especially hesitant to disturb such ‘strategic' decisions, ” Pavel v. Hollins, 261 F.3d 210, 217 (2d Cir. 2001), “[c]ourts applying Strickland are especially deferential to defense attorneys' decisions concerning which witnesses to put before the jury.” Greiner v. Wells, 417 F.3d 305, 323 (2d Cir. 2005). Thus, a trial “counsel's decision as to ‘whether to call specific witnesses - even ones that might offer exculpatory evidence - is ordinarily not viewed as a lapse in professional representation.'” Id. (quoting United States v. Best, 219 F.3d 192, 201 (2d Cir. 2000)).

         6. Defendant's first argument is that defense counsel failed to understand that the offering documents (an Operating Agreement and Confidential Term Sheet) allowed him to take 90% of the investors' money for his own personal use, and that defense counsel should have made this argument to the jury. Just to state the argument shows its absurdity - for it to be true, these offering documents would have to be the most peculiar documents in financial history. If they said what defendant asserts they said, an investor would have to be cognitively impaired to invest based on them.

         7. But the offering documents were not absurd at all. They were received in evidence on the Government's offer at trial. They expressly provided that defendant would have no right to receive any compensation until his investment company raised $1 million, and it was undisputed that the investment company never raised $1 million.

         8. The essence of defendant's argument is that as managing member of the investment company, the Operating Agreement gave him the right to change its terms. The argument is so convoluted that it needs to be deconstructed to be understood. To avoid disclosure of his tainted record in the securities industry, petitioner initially named another person to be managing member of the company. There were two individuals who held this role. Each resigned in outrage (as they testified) when they learned of defendant's continuing embezzlements, ultimately forcing defendant to become the managing member. Seeking to turn a sow's ear into a silk purse, defendant contends, as managing member, he could authorize his own personal use of 90% of the funds raised. There are so many problems with this argument that it is hard to know where to start.

         9. First, the record was undisputed that the far greater part of the embezzlement occurred before he became managing member - as noted, his embezzlement was the reason each of his predecessors resigned. So defendant wants his attorney to have argued not only that defendant had the right to take the money for his own use, but that he had the right to ratify nunc pro tunc that which would otherwise have been improper. Nothing in the Operating Agreement said that.

         10. Second, the ability of the managing member to change the terms of the Operating Agreement, as one would expect, was not unbridled. The Operating Agreement contained the standard clause in private placements allowing a change only if it “does not adversely affect the rights of any member” and did not “discriminate among the members.” A 90% embezzlement does not quite appear to satisfy these conditions.[3]

         11. Third, and ironically, defendant's counsel came as close to making the argument that defendant says he should have made as any reasonable lawyer could. In his closing argument, counsel asserted that even though defendant was not the managing member when some of the embezzlement occurred, defendant was the de facto manager of the investment company, and it was this very fact that gave defendant the right to “amend” the Operating Agreement to permit his personal use of the money. Defense counsel specifically directed the jury to § 8.04 of the Operating Agreement (even though defendant's § 2255 motion asserts that counsel was ineffective for not doing so). Counsel argued that the legally-appointed managing members were managing members “in name alone. [Defendant] was the real managing member . . . . So [defendant] controlled the money as managing member . . . . [Defendant] had the right to amend the agreement as managing member to take a salary.”

         12. I do not see how defendant could have expected his counsel to go any further than this. I therefore reject his point that counsel was ineffective because he “failed to call witnesses to explain and interpret the meaning and powers of the Managing Member (Movant/Gallagher).” Defendant does not identify who these witnesses would be (other than himself, discussed below), but trial counsel's strategic decision to make these arguments to the jury instead of presenting witnesses who would either have been incompetent to give opinion testimony or would have been subject to wilting cross-examination was well within counsel's discretion.

         13. A second, related point of error arising from defense counsel's alleged misunderstanding of the investment transactions is that counsel failed to call several investors who would have testified that they were happy with the way their investment came out. They were happy because, in fact, as investors called by the Government testified on cross-examination, they had received substitute stock of Watt Fuel Cell which at least had a chance to do better than the one targeted in their initial investment. Defendant contends that his counsel failed to realize that defendant's creation of the company Watt was a ...


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