Court Opinion

ID: 1024553
Source: CourtListenerOpinion
Date Created: 2013-07-05 06:35:22.446931+00
Date Added: 2024-06-11T12:27:20.952706
License: Public Domain

UNPUBLISHED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Affirmed by unpublished opinion.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Unpublished opinions are not binding precedent in this circuit.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