Fountain v. U.S., Docket No. 03-2188.

• Citation: 357 F.3d 250
• Decision Date: 26 January 2004
• Docket Number: Docket No. 03-2188.
• Parties: John FOUNTAIN, also known as Chick, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

357 F.3d 250

John FOUNTAIN, also known as Chick, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.

Docket No. 03-2188.

United States Court of Appeals, Second Circuit.

Argued: November 4, 2003.

Decided: January 26, 2004.

Bruce R. Bryan, Syracuse, NY, for Petitioner-Appellant John Fountain.

Elizabeth S. Riker, Assistant United States Attorney, for Glenn T. Suddaby, United States Attorney for the Northern District of New York, for Respondent-Appellee the United States of America.

Before: McLAUGHLIN and KATZMANN, Circuit Judges SCHEINDLIN, District Judge

KATZMANN, Circuit Judge.

In the context of a petition for habeas corpus, this case considers whether, after the Supreme Court's decision in Cleveland v. United States, 531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000), taxes owed to a government can constitute "property" in its hands within the meaning of the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343. It also evaluates the continued validity of our decision in United States v. Trapilo, 130 F.3d 547 (2d Cir. 1997), that the common law revenue rule does not bar criminal prosecutions under the mail and wire fraud statutes in light of our more recent decision in Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103 (2d Cir.2001).

Petitioner appeals from a decision and order of the United States District Court for the Northern District of New York (Thomas J. McAvoy, District Judge) denying his motion for habeas corpus under 28 U.S.C. § 2255 but granting a certificate of appealability on two issues. We hold that taxes owed to a government can constitute property in its hands within the meaning of the federal mail and wire fraud statutes, and that Trapilo remains good law in this Court.

I. BACKGROUND

After retiring from twenty-one years of service to the New York State Police, Petitioner John Fountain entered the currency exchange business in Hogansburg, New York, adjacent to the St. Regis Mohawk Reservation. Using cashier's checks and wire transfers, he began exchanging Canadian for U.S. currency in conjunction with a scheme to transport cigarettes from Canada into the St. Regis Mohawk Reservation then back to Canada to be sold on the black market. The enterprise was designed to circumvent the high Canadian taxes on tobacco products.

As a result of these currency exchange activities, Fountain was indicted, along with others, in July, 1997 (the "Miller Indictment"), on the charge of conspiracy to launder the proceeds of a wire fraud scheme in violation of the money laundering statute, 18 U.S.C. § 1956(a)(1)(A)(I), 1956(h). The illegality of the underlying conduct derived from the wire fraud statute, which provides that:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire ... in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.

18 U.S.C. § 1343. The government claimed that the conspiracy was intended to defraud both the United States and Canada, asserting that both countries were deprived of tax revenues.

Other individuals involved in the scheme had already been indicted in 1996 (the "Trapilo/Pierce Indictment"), and litigation had progressed in their case. These defendants had successfully moved, in the district court, to dismiss the indictment based upon the First Circuit's application of the common law revenue rule to bar a similar prosecution in United States v. Boots, 80 F.3d 580 (1st Cir.1996). See United States v. Trapilo, No. 96 Cr. 54, 1996 WL 743837, 1996 U.S. Dist. LEXIS 19237 (N.D.N.Y. Dec. 20, 1996). As the court in Boots explained the revenue rule, this "firmly embedded principle of common law ... holds that courts generally will not enforce foreign tax judgments, just as they will not enforce foreign criminal judgments, although they will enforce foreign non-tax civil judgments unless due process, jurisdictional, or fundamental public policy considerations interfere." Boots, 80 F.3d at 587. Although the criminal prosecution involved in Boots did not directly involve enforcement of a foreign tax judgment, the court determined that the revenue rule still operated to nullify the defendants' convictions because "[w]here a domestic court is effectively passing on the validity and operation of the revenue laws of a foreign country, the important concerns underlying the revenue rule are implicated." Id. at 587. When the government appealed the district court's decision in Trapilo, however, we reversed, holding that "[t]he [wire fraud] statute neither expressly, nor impliedly, precludes the prosecution of a scheme to defraud a foreign government of tax revenue, and the common law revenue rule, inapplicable to the instant case, provides no justification for departing from the plain meaning of the statute." United States v. Trapilo, 130 F.3d 547, 551 (2d Cir.1997). Based on the outcome of Trapilo, the district court rejected the Miller defendants' similar attempt to dismiss the indictment against them. See United States v. Miller, 26 F.Supp.2d 415, 430 (N.D.N.Y.1998). Because the Trapilo decision was directly adverse to his position, Fountain opted not to appeal the district court's determination and instead entered a plea of guilty in the hopes of receiving a lesser sentence.

Although Fountain had been charged with the intent to defraud both the United States and Canada, he admitted only to a scheme to deprive the Canadian government of revenue at his plea allocution. As Petitioner stated, "I didn't defraud the U.S. government." Nor did the prosecutor attempt to force Fountain to acknowledge that he was guilty of doing so. As the government responded, "Mr. Fountain doesn't have to enter his plea on the basis of his participation in a conspiracy to defraud the United States of any tax revenue." The court added, "Yes, as I understand it, there is no technical requirement to fulfill the elements ... that comprise the crime that you're pleading to that there be any defrauding of the United States Government of dollars. The Court accepts that." As a result of his plea, Fountain was sentenced to 84 months' imprisonment by a judgment of conviction entered in October, 1999. This term was subsequently reduced to 60 months.

Following Petitioner's conviction, two legal developments occurred. First, the Supreme Court held, in Cleveland v. United States, 531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000), that unissued state video poker licenses did not qualify as "property" within the compass of the mail fraud statute — identical in all relevant respects to the wire fraud statute. See Carpenter v. United States, 484 U.S. 19, 25 n.6, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987) ("The mail and wire fraud statutes share the same language in relevant part, and accordingly we apply the same analysis to both sets of offenses here."). As Justice Ginsburg stated, writing for a unanimous Court, "It does not suffice ... that the object of the fraud may become property in the recipient's hands; for purposes of the mail fraud statute, the thing obtained must be property in the hands of the victim." Cleveland, 531 U.S. at 15, 121 S.Ct. 365. Second, we determined, in Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103 (2d Cir.2001), that the revenue rule still applies to bar civil suits aimed at enforcing foreign tax laws.

As a result of these decisions, Fountain brought a habeas petition under 28 U.S.C. § 2255, alleging that he had not violated the wire fraud statute because:

(i) the Canadian Government did not possess "property" in its hands at the time of the alleged fraud;

(ii) the wire fraud statute was not intended to protect a foreign government's rights against a scheme to defraud; and

(iii) the alleged act of fraud occurred beyond the territorial jurisdiction of the United States, and therefore failed to meet the "essential conduct element" giving jurisdiction of a United States court over the crime alleged....

In the alternative, Petitioner claimed that his counsel had been ineffective in failing to raise these issues.

The district court ruled against Fountain, determining that he had procedurally defaulted, and that he could not surmount the default by showing either cause and prejudice or actual innocence. Furthermore, the court held that Petitioner's counsel had not been ineffective for failing to raise a revenue rule defense. However, the court did certify two issues for review by this court:

(1) whether counsel was constitutionally ineffective for failing to pursue the Revenue Rule defense in light of Petitioner's assertion that he did not defraud the United States; and

(2) whether the conviction was obtained without proof beyond a reasonable doubt of each element of the crime and therefore whether Petitioner is being unconstitutionally held.

These are the questions that we consider below.

II. ANALYSIS

A court of appeals reviews a district court's denial of a 28 U.S.C. § 2255 petition de novo. Coleman v. United States, 329 F.3d 77, 81 (2d Cir.2003). The contours of Fountain's case are largely delineated by the Supreme Court's decisions in Bousley v. United States, 523 U.S. 614, 118 S.Ct. 1604, 140 L.Ed.2d 828 (1998), and Massaro v. United States, 538 U.S. 500, 123 S.Ct. 1690, 155 L.Ed.2d 714 (2003). Bousley held that an individual who pled guilty to "using" a firearm under 18 U.S.C. § 924(c)(1) would not be procedurally barred from bringing a habeas petition if he could demonstrate actual innocence based upon a subsequent Supreme Court case that restricted the scope of the meaning of "use" within the terms of the statute. A habeas action is not intended...