Court Opinion

ID: 821165
Source: CourtListenerOpinion
Date Created: 2013-02-23 00:25:46.031496+00
Date Added: 2024-06-11T15:11:16.495909
License: Public Domain

Case: 12-30115       Document: 00512152911         Page: 1     Date Filed: 02/22/2013

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                         February 22, 2013

                                       No. 12-30115                        Lyle W. Cayce
                                                                                Clerk

WILLIAM EDWARD STEWART,

                                                  Petitioner-Appellant
v.

JOE KEFFER,

                                                  Respondent-Appellee

                   Appeal from the United States District Court
                      for the Western District of Louisiana
                             USDC No. 1:08-CV-909

Before STEWART, Chief Judge, DAVIS, and CLEMENT, Circuit Judges.
PER CURIAM:*
       Petitioner-Appellant William Edward Stewart (“Stewart”) appeals the
district court’s denial of his motion pursuant to 28 U.S.C. § 2241, collaterally
attacking his sentence after pleading guilty to money laundering. Stewart
argues that the indictment created a “merger” problem, that he pled guilty to a
nonexistent crime, and that his sentence should be vacated in light of United
States v. Santos, 553 U.S. 507 (2008). Finding no error, we AFFIRM for the
reasons more fully set forth below.

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
     Case: 12-30115      Document: 00512152911        Page: 2     Date Filed: 02/22/2013

                                     No. 12-30115

                                            I.
       In February 1999, Stewart was indicted on one count of conspiracy to
commit wire fraud under 18 U.S.C. § 371 (Count 1), four counts of wire fraud
pursuant to 18 U.S.C. § 1343 (Counts 2-5), two counts of money laundering
under 18 U.S.C. § 1956(a)(1)(A)(1) (Counts 6-7), and four counts of money
laundering under 18 U.S.C. § 1957(a) (Counts 8-11). Stewart (and his
Co-Defendants) were charged with falsely representing to potential investors
that they operated an investment firm known as Allied Investment Company
(“Allied”) and that Stewart was the CEO.               Stewart fraudulently induced
investors to place funds with Allied, but those funds were never invested.
Instead, the Defendants used the funds to pay personal expenses, to purchase
investments for the Defendants’ personal benefit, and to pay purported earnings
to earlier investors. The funds received from investors were deposited in First
Bank & Trust. The Defendants then transferred the funds to accounts at Metro
Bank that were held by Allied and controlled by the Defendants.
       Stewart pled guilty to Count 6 of the indictment, which charged him with
money laundering for the purpose of promoting the Defendants’ unlawful
activity; specifically, it charged Stewart with engaging in a wire transfer of
$315,000 of investor funds from an account located at First Bank & Trust in
Beaumont, Texas, to an Allied account at Metro Bank in Houston, Texas, on July
30, 1998. All other counts (Counts 1-5, 7-11) were dismissed by the Government.
       The district court sentenced Stewart to 240 months in prison, 5 years of
supervised release, and ordered restitution in the amount of $1,429,302.1
Stewart appealed his sentence and conviction, and this court affirmed. Stewart
later filed a 28 U.S.C. § 2241 habeas petition in which he argued the savings

       1
         Stewart was initially sentenced to 250 months’ imprisonment, 5 years of supervised
release, and was ordered to pay restitution in the amount of $1,886,200, but an amended
judgment was subsequently entered.

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clause of 28 U.S.C. § 2255 applied and that his money laundering conviction
should be invalidated in light of the Supreme Court’s then-recent decision in
United States v. Santos, 553 U.S. 507 (2008), because he was convicted of a
nonexistent offense. The district court found Santos was inapplicable because it
applied only in the context of illegal gambling.
      Stewart appealed and on February 17, 2011, this court vacated the district
court’s decision and remanded because the district court did not have the benefit
of this court’s contrary reasoning interpreting Santos. See Garland v. Roy, 615
F.3d 391 (5th Cir. 2010). On remand, the district court ruled that Stewart did
satisfy the requirements of the savings clause of § 2255, but denied and
dismissed his § 2241 claim. It found no “merger” problem because there was no
overlap between his wire fraud counts and his money laundering conviction.
                                           II.
      In an appeal from the denial of habeas relief, this court reviews the district
court’s determinations of law de novo and its findings of fact for clear error.
Jeffers v. Chandler, 253 F.3d 827, 830 (5th Cir. 2001).
                                          III.
      To assess Stewart’s claim on appeal, it is first necessary to put his
argument in context by briefly discussing the Supreme Court’s Santos decision
and our recent application of that case in Garland. Under 18 U.S.C. § 1956, the
crime of money laundering occurs when an individual “knowing that the
property involved in a financial transaction represents the proceeds of some form
of unlawful activity, conducts or attempts to conduct such a financial transaction
which in fact involves the proceeds of specified unlawful activity.” In Santos, the
Supreme Court, in a plurality opinion, clarified that the term “proceeds,” as used
in the statute, means “profits” rather than “gross receipts.”2 553 U.S. at 514.

      2
        In response to the Santos decision, Congress amended 18 U.S.C. § 1956 in May 2009
to provide a definition for “proceeds.” See Fraud Enforcement and Regulatory Act of 2009,

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That is to say, in Santos, when a defendant was convicted of illegal gambling
activity and was also charged with money laundering for the transactions in
which he paid his employees and bettors, the Court found that these
transactions—which were just paying the “essential expenses of operating” the
underlying crime—did not constitute money laundering. Id. at 524 (plurality
opinion), 528 (Stevens, J., concurring). The Court found that a “merger problem”
would arise if the “underlying illegal activities would also constitute money
laundering when the offenses involved transactions in which receipts were
passed on to someone else.” Wilson v. Roy, 643 F.3d 433, 436 (5th Cir. 2011)
(citing Santos, 553 U.S. at 515-17).3
       In Garland v. Roy, 615 F.3d 391 (5th Cir. 2010), we assessed Santos in
light of the fact that it was a plurality opinion and ultimately chose to adopt
Justice Stevens’s narrow concurrence. We interpreted Justice Stevens’s
concurrence as a “two-part” holding: the first part held that the rule of lenity
required a finding that “proceeds” meant “profits” in cases where defining
proceeds as gross receipts would result in a “merger problem.” Id. at 402. A
merger problem would exist “if ‘proceeds’ were to be defined as ‘receipts’ rather
than ‘profits,’” such that the money laundering charge could be based on the
same transaction as the predicate crime. Id. at 400. And secondly, in cases where
there is no merger problem, Justice Stevens stated that there should be a

Pub.L. No. 111-21, § 2(f)(1), 123 Stat. 1617, 1618 (2009), codified at 18 U.S.C. § 1956(c)(9). As
amended, the statute defines “proceeds” broadly as “any property derived from or obtained or
retained, directly or indirectly, through some form of unlawful activity, including the gross
receipts of such activity.” 18 U.S.C. § 1956(c)(9). This amendment effectively overruled Santos
and applies prospectively.
       3
        See Santos, 553 U.S. at 517 (“Interpreting ‘proceeds’ to mean ‘profits’ eliminates the
merger problem. Transactions that normally occur during the course of running a lottery are
not identifiable uses of profits and thus do not violate the money-laundering statute. More
generally, a criminal who enters into a transaction paying the expenses of his illegal activity
cannot possibly violate the money-laundering statute, because by definition profits consist of
what remains after expenses are paid.”).

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presumption that “proceeds” should be defined as “gross receipts,” but that this
presumption could be rebutted by the legislative history of § 1956. Id. at 402.4
In Garland, this court held that Garland’s convictions for fraud potentially
merged with his money laundering conviction when the Government alleged that
Garland engaged in mail fraud to sell fraudulent securities and then used the
proceeds of those sales to distribute money to previous investors, under the guise
that he was returning their initial investments. Id. at 395.
       In contrast to Santos and Garland, there are no facts presented here to
suggest that the money laundering charge was in any way based on the payment
of essential operating expenses. Rather, the factual basis supporting Stewart’s
charge was simply the transfer of funds from one bank account to another in
order for Stewart to access the funds. There is nothing to suggest that the funds
were used to pay expenses of the crime.5
       The facts here are strikingly similar to those of United States v. Halstead,
634 F.3d 270 (4th Cir. 2011). In Halstead, the defendant committed healthcare
fraud and subsequently transferred his fraudulently obtained funds into his own
account. The court explained:
          After Priority One fraudulently obtained money from the
       healthcare providers, Halstead directed that the money be
       transferred from Priority One to West Virginia Medical Corporation,
       a company created to manage Priority One. He also directed that
       the money be further transferred from West Virginia Medical
       Corporation to Burns and himself, in this case through his company,
       Practice Systems. These transfers constituted the “transactions” of
       money laundering . . . . Halstead conducted a financial transaction

       4
         For an extensive account of Santos and Garland, see our recent discussion in United
States v. Lineberry, 702 F.3d 210, 212-16 (5th Cir. 2012).
       5
         Indeed, while we are operating on limited facts, as Stewart pled prior to trial, the
record supports this conclusion: “Bruce Neill Smith [a Co-Defendant] wired the funds into my
[Defendant Stewart’s] account (Allied Investment Company, Metro Bank, Houston, Texas)
from his (Smith’s) First Bank & Trust, Beaumont, Texas bank account.”

                                             5
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       with money he knew was the result of healthcare fraud, and he had
       the intent to further an unlawful activity when making those
       transfers, one category of transfers from Priority One to West
       Virginia Medical Corporation and another from West Virginia
       Medical Corporation to his own corporation’s bank accounts.
       Moreover, both the transfers to the management company and the
       transfers to Halstead’s company were separate from the
       transactions constituting healthcare fraud. The healthcare fraud
       charges were defined by the obtaining of money from the fraudulent
       billing of healthcare providers, while the money laundering charge
       was defined by transferring the proceeds thereafter.
            Thus, the merger problem never arises in the circumstances of
       this case, and Santos provides Halstead no relief.
Id. at 280-81. It further stated that Santos “does not warrant relief in this case
where the laundering of proceeds from the wire fraud involved transactions
distinct from and subsequent to the transfers involved in the wire fraud itself,”
and that “regardless of whether ‘proceeds’ is defined as ‘gross receipts’ or ‘net
profits,’ a merger problem did not occur because [defendant’s] commission of wire
fraud was complete before he committed money laundering.” Id. at 271-72. And
later: “[Where the indictment charged the defendant with transferring funds
from one account to another], in facilitating these transfers, [defendants] were
not paying the expenses of the fraud, but rather were reaping the fruits of their
crimes.” United States v. Cloud, 680 F.3d 396, 407 n.4 (4th Cir. 2012) (citing
Halstead, 634 F.3d at 273).
       Similar to Halstead, here Stewart was charged with transferring the
proceeds through various accounts into his own coffers; he was not charged with
paying persons involved in the underlying fraud for services necessary to the
operation of the fraud. Thus we conclude that there is no merger problem.6

       6
        Under the second part of Justice Stevens’s bifurcated analysis endorsed by this court,
Justice Stevens presumes that “proceeds” should be defined as “gross receipts,” but would
allow that presumption to be rebutted by legislative history. Because in this case regardless
of whether “proceeds” is defined as “gross receipts” or “profits,” a merger problem did not occur
as Stewart’s commission of wire fraud was complete before he committed money laundering,

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      Stewart maintains that there was a merger problem because Count 2 of
the indictment alleged that wire fraud occurred from March to October 1998 and
that this time frame encompassed the date on which the money laundering
(Count 6) occurred—July 30, 1998—such that Stewart was charged twice for the
same transaction. But Stewart mischaracterizes the indictment. While Count 2
does reference this time frame to explain the context of the scheme in its
entirety, it is clear that the charge underlying Count 2 is a wire fraud
transaction occurring on July 3, 1998, whereby the Defendants transferred
$715,000 in investor funds from First Counties Bank to First Bank & Trust. The
charge of Count 2 is clearly distinct from Count 6's July 30, 1998 transfer of
funds. Furthermore, even assuming the dates of the charges did overlap, it is not
the date of the transactions that must guide our analysis, but rather the nature
of the payments and whether they are or are not being used to pay the costs of
the illegal activity. As noted above, there is nothing here to suggest that the
funds of the transaction charged in Count 6 were used to pay any expenses of the
crime.
      Finally, Stewart has cited no case in which a defendant pleads to a money
laundering charge, has all other charges dropped, and then successfully argues
that an impermissible merger has occurred—the argument Stewart tries to
make here. In fact, the authorities Stewart cites are easily distinguishable from
the instant case, as they involved a defendant being tried and convicted of both
money laundering and a separate charge involving the underlying illegal
activity. For example, United States v. Cloud, 680 F.3d 396, involved a mortgage
fraud scheme. A jury convicted the defendant on multiple counts, including three
counts of mail fraud, thirteen counts of bank fraud, and six counts of money
laundering. Id. at 399. The Fourth Circuit reversed the money laundering

we do not think it necessary to delve into the legislative history of the money laundering
statute to resolve this particular case.

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                                     No. 12-30115

convictions where they were based on transactions that involved the “past and
essential expenses of Cloud’s mortgage fraud payment,” namely Cloud paying
the “recruiters, buyers, and coconspirators for services performed.” Id. at 408.
Thus an impermissible merger occurred on those facts where Cloud was charged
and convicted of fraud offenses and money laundering offenses. This is not the
case here.
       Stewart was initially charged with eleven counts, but he pled guilty to only
one count of money laundering, and all other charges were dismissed. Thus, we
are not persuaded that Stewart’s charges have impermissibly merged where he
pled guilty to a single money laundering charge but not to the underlying
specified unlawful activity. In fact, our recent decision in United States v.
Lineberry is instructive in this context. 702 F.3d 210 (5th Cir. 2012). In
Lineberry, we found that there was no merger problem where the defendant was
convicted under the money laundering statute but was never charged with the
underlying specified unlawful activity—in that case, the promotion of
aggravated prostitution. Id. at 218.7 Importantly, in doing so, we distinguished
Lineberry’s facts from those of Santos and Garland, stating, “Unlike the
defendants in Santos or Garland, Lineberry was not convicted of the predicate
crime underlying the money-laundering convictions.” Id.8
       Accordingly, we decline to vacate Stewart’s money laundering sentence.9

       7
         While we recognize that Lineberry was never even charged with the underlying
offense and Stewart was charged with the underlying offense but the charges were dismissed,
we nevertheless find Lineberry’s analysis applicable.
       8
        See also Rippetoe v. Roy, No. 5:08-CV-210, 2011 WL 2652131, at *6 (E.D. Tex. June
9, 2011) (noting no potential of a “merger problem” where defendant pled guilty to money-
laundering charges but not to the underlying specified unlawful activity).
       9
         Stewart also argues that his plea was not knowing and voluntary because he pled
guilty to a nonexistent crime. As we have already rejected Stewart’s argument that he pled
guilty to a “phantom charge,” we find no merit to this allegation.

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                               No. 12-30115

                                    IV.
      For the above reasons, we AFFIRM the district court’s dismissal of
Stewart’s § 2241 petition.

                                     9