Keating v. Hood

• Decision Date: 03 April 1996
• Docket Number: No. CV 95-5151 JGD (RNBx.),CV 95-5151 JGD (RNBx.)
• Citation: 922 F. Supp. 1482
• Parties: Charles H. KEATING, Jr., Petitioner, v. Robert HOOD, Warden of Federal Correctional Institute at Tucson, Arizona, and Daniel Lundgren, Attorney General of the State of California, Respondents.
• Court: U.S. District Court — Central District of California

922 F. Supp. 1482

Charles H. KEATING, Jr., Petitioner, v. Robert HOOD, Warden of Federal Correctional Institute at Tucson, Arizona, and Daniel Lundgren, Attorney General of the State of California, Respondents.

No. CV 95-5151 JGD (RNBx.)

United States District Court, C.D. California, Western Division.

April 3, 1996.

Jeffrey S. Powell, Kirkland & Ellis, Chicago, IL, Stephen C. Neal, Cooley Godward Castro Huddleson & Tatum, Palo Alto, CA, for Charles H. Keating, Jr.

Sanjay T. Kumar, Deputy Atty. Gen., John R. Gorey, California Atty. General Office, Los Angeles, CA, for Robert Hood and California Atty. Gen.

ORDER GRANTING PETITION FOR WRIT OF HABEAS CORPUS

DAVIES, District Judge.

On August 3, 1995, Charles H. Keating, Jr., filed the instant Petition for Writ of Habeas Corpus. On August 9, 1995, Magistrate Judge Robert N. Block issued an order directing the State of California to file an Answer to the petition within forty-five days and to lodge with the Court all records bearing on Keating's exhaustion of state remedies and the merits of the petition. On September 21, 1995, the State filed an Answer that addressed only the issue of exhaustion of state remedies. Keating filed a Traverse on October 11, 1995. On October 16, 1995, Magistrate Judge Block issued a Report and Recommendation finding that Keating failed to exhaust state remedies. Local Rule 3.2.09 of the Local Rules Governing Magistrates provides that a petitioner in custody may file objections to the Report and Recommendation within twenty days of filing of the Report and Recommendation. No objections were filed within the twenty-day period. The Court adopted the Magistrate Judge's Report and Recommendation on December 15, 1995, and judgment was entered on that same date.

On January 23, 1996, Keating filed an ex parte application to stay judgment on his petition for a writ of habeas corpus and to extend time to file objections to the Report and Recommendation. Keating claimed that he did not receive notice of the Report and Recommendation until January 12, 1996. As a result, he failed to file objections within twenty days. Keating also claimed that he did not receive notice of the judgment until January 12, 1996. The Court granted the ex parte application on January 24, 1996. Keating filed objections to the Magistrate Judge's Report and Recommendation on February 15, 1996.

On February 1, 1996, Keating filed an ex parte application requesting an order directing the State of California to file a memorandum on the merits of Keating's petition on or before a date certain. The Court granted the application and directed the State of California to file a memorandum on the merits on or before February 26, 1996. The State filed a Brief on the Merits on February 26, 1996. Keating filed a Reply Memorandum in Support of Petition for Writ of Habeas Corpus on March 4, 1996. The petition came on for hearing on April 1, 1996.

Factual and Procedural Background

American Continental Corporation ("ACC") was founded in 1969 as a subsidiary of American Financial Corporation, and until 1976, was primarily a residential home builder. Keating's Opening Brief in Support of Petition for Review ("Opening Br."), Exh. E, at 6, Answer; People v. Keating, 19 Cal. Rptr.2d 899, 902 (Cal.App. 2 Dist.1993). In late 1976, Keating and others purchased control of ACC. Id. New management focused ACC's homebuilding operations on fewer markets and diversified ACC's operations by establishing a mortgage banking company, expanding land development and home building capabilities, commencing broader commercial real estate activities, and initiating insurance services. Id.

On October 18, 1983, ACC applied to the California Department of Savings and Loan and to the Federal Home Loan Bank Board for approval to acquire Lincoln Savings and Loan Association ("Lincoln"). Opening Br., at 7; Keating, 19 Cal.Rptr.2d at 902. Both agencies approved the acquisition on February 21, 1984. Id. In late 1986, ACC began issuing subordinated debentures and selling them through Lincoln branches. Opening Br., at 7; Keating, 19 Cal.Rptr.2d at 903. Lincoln selected some of its employees to become ACC representatives. Keating, 19 Cal.Rptr.2d at 903. Lincoln also leased an area of 110 square feet in each office to ACC. Opening Br., at 8; Keating, 19 Cal.Rptr.2d at 903. ACC representatives negotiated the bonds from a separately designated desk within each branch. Keating, 19 Cal.Rptr.2d at 903. ACC bonds were sold at the Lincoln branches from late 1986 until February 1989. Opening Br., at 9; Keating, 19 Cal.Rptr.2d at 906. On April 13, 1989, ACC filed for protection under Chapter 11 of the United States Bankruptcy Code. Id. The next day, the federal government placed Lincoln into conservatorship. Keating, 19 Cal.Rptr.2d at 906.

In a 46-count second-amended indictment, the Grand Jury of the County of Los Angeles accused Keating and three others of numerous violations of the California Corporations Code. The district attorney alleged that the violations had occurred, and the second-amended indictment was filed in the Superior Court of the State of California for the County of Los Angeles on November 19, 1990. Id. at 901. Specifically, the indictment alleged twenty counts of sales of securities by means of false statements or omissions, in violation of sections 25401 and 25540; twenty counts of sales of securities without qualification, in violation of sections 25110 and 25540; three counts of making false statements to the corporations commissioner, in violation of sections 25166 and 25540; and three counts of failing to file advertising with the corporations commissioner before use, in violation of sections 25300 and 25540. The indictment further alleged that the statute of limitations had been tolled, within the meaning of California Penal Code section 803, as to the violations in counts 3, 5, 10, 17 through 19, 23, 25, 30, 32, 37 through 39, and 41 through 46. Id.

Keating pleaded not guilty to the secondamended indictment on January 11, 1991. Id. Counts 1, 19, and 21 through 46 were dismissed either at the prosecution's request or upon the grant of Keating's motion pursuant to California Penal Code section 995. The court denied a motion by Keating to set aside the indictment, and granted a motion by Keating for severance from the co-defendants. Id.

On August 6, 1991, the matter proceeded to a trial by jury on the remaining eighteen counts. Id. A motion by Keating for judgment of acquittal pursuant to California Penal Code section 1118.1 was denied. On December 4, 1991, the jury returned its verdict. Keating was found not guilty as to count 7, and guilty as charged in counts 2 through 6, 8 through 18, and 20, all violations of California Corporations Code sections 25401 and 25540. The jury further found the statute of limitations had been tolled as to counts 3, 5, 10, 17, and 18. The court denied a motion by Keating for a new trial. Id.

Keating was found guilty in each of the counts alleging that misstatements and/or omissions were made to a particular investor in connection with his or her purchase of ACC bonds. See id. at 901. An opinion by the California Court of Appeal indicates that the State's case was based primarily therefore on the investors' testimony regarding what they were told or not told when they purchased the bonds from ACC representatives. Id. at 906-16. The evidence at trial established that Keating never personally sold any security to any of the individual investors. Id. at 920.

On April 10, 1992, the court sentenced Keating to ten years in state prison and imposed a maximum fine of $250,000. Id. at 901. Keating filed a timely notice of appeal on April 23, 1992. Id. at 902.

The California Court of Appeal, Second Appellate District, Division One, affirmed the conviction on June 3, 1993. Id. at 924. On September 30, 1993, the California Supreme Court granted Keating's petition for review of the conviction. People v. Keating, 23 Cal. Rptr.2d 593, 859 P.2d 673 (Cal.1993). Subsequently, on March 23, 1995, however, the State Supreme Court changed its position and dismissed the petition for review. People v. Keating, 39 Cal.Rptr.2d 410, 890 P.2d 1119 (Cal.1995). Keating then filed his Petition for Writ of Habeas Corpus in this Court.

Discussion

I. The Direct Perpetrator Jury Instruction

Keating contends that the jury instructions violated his rights to due process because they permitted the jury to convict him without finding mens rea. The jury was instructed that Keating could be convicted for violating California Corporations Code sections 25401 and 25540 as either a direct perpetrator or as an aider and abettor. Section 25401 provides:

It is unlawful for any person to offer or sell a security in this state or buy a security in this state by means of any written or oral communications which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

California Corporations Code Section 25540(b) criminalizes a violation of section 25401.

The trial court instructed the jury that criminal liability as a direct perpetrator could be found as follows:

In order to prove a violation of sections 25401 and 25540, each of the following elements must be proved:

(1) The defendant willfully sold or offered to sell a security in the State of California;

(2) by means of any written or oral communication which includes an untrue statement of material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

* * * * * *

The term "offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value.

The term "sale" or "sell" includes every contract of sale of,

...