United States District Court, D. South Dakota, Western Division
JEFFREY L. VIKEN, Chief District Judge.
On January 17, 2013, Petitioner Ronald Joseph Jones, appearing pro se, filed a motion (Docket 1) pursuant to 28 U.S.C. § 2255 ("2255 Motion") to vacate or set aside his criminal conviction in United States v. Ron Jones, CR-10-50015-01-JLV (D.S.D. 2012). Mr. Jones filed a 104-page memorandum and a 419-page supplement consisting of 62 exhibits in support of the petition. (Dockets 2 & 3). On July 18, 2013, Mr. Jones moved to amend the petition on the basis of Alleyne v. United States, ___ U.S. ___, 133 S.Ct. 2151 (2013). (Docket 25). Following those submissions, Mr. Jones filed two motions for partial summary judgment, motions for leave to conduct discovery and for an evidentiary hearing, a motion seeking copies of certain materials, two motions for discovery and a motion for appointment of counsel. (Dockets 28, 33, 40-41, 43 & 46-48).
Pursuant to a standing order of October 16, 2014,  the matter was referred to United States Magistrate Judge Veronica L. Duffy pursuant to 28 U.S.C. § 636(b)(1)(B). On November 4, 2014, Judge Duffy issued a report recommending the court grant the motion to amend the petition on the basis of Alleyne, deny the above-referenced motions and deny the petition with prejudice. (Docket 50 at pp. 64-65). Pursuant to 28 U.S.C. § 636(b)(1), objections to the report and recommendation were due on or before November 24, 2014. Mr. Jones timely filed his objections. (Docket 51). After the deadline for filing objections, Mr. Jones filed a second motion for appointment of counsel and four motions to supplement the record. (Docket 52-56). For the reasons stated below, Mr. Jones' motion to amend the petition and the motions to supplement the record are granted in part and denied in part, his objections are overruled and the report and recommendation is adopted as modified by this order. Mr. Jones' other motions are denied.
Mr. Jones and two co-defendants were charged on February 18, 2010, in a multiple-count indictment. (CR-10-50015-01, Docket 3). On October 19, 2010, a superseding indictment was filed. ( Id., Docket 103). The superseding indictment charged Mr. Jones with count 1, conspiracy to entice potential investors into a business prospectus for Plato Systems through the use of false information and using invested funds for his private expenses; counts 2-30, wire fraud; counts 31-32, mail fraud; counts 33-44, wire fraud; counts 45-49, money laundering; count 60, conspiracy to launder monetary instruments; counts 61-81, engaging in monetary transactions in property derived from specified unlawful activity; and counts 82-84, false statements. Id . The principal difference between the original indictment and the superseding indictment is the addition of counts 82-84 charging Mr. Jones with making false statements to a Department of Homeland Security Special Agent during the course of the agency's investigation. Compare id., Dockets 3 and 103.
On October 3, 2011, the government and Mr. Jones executed a plea agreement and factual basis statement. ( Id., Dockets 295 & 296). Mr. Jones agreed to plead guilty to count 1, conspiracy in violation of 18 U.S.C. § 371; count 12, wire fraud and aiding and abetting in violation of 18 U.S.C. §§ 2 and 1343; and count 71, money laundering in violation of 18 U.S.C. § 1957(a). ( Id., Docket 295 ¶ C). The critical language of those counts was as follows:
COUNT 1: Conspiracy (18 U.S.C. § 371)
37. On or about between 2004 and 2005, until on or about the date of this Indictment, in the District of South Dakota, and elsewhere, the defendants, Ron Jones... and Arland Clark, together with other persons known and unknown to the grand jury, did combine, conspire, confederate, and agree together with each other and other persons known and unknown to the grand jury to commit offenses against the United States of America as follows:
-to devise a scheme and artifice to defraud and for obtaining money and property by means of false and fraudulent pretenses, representations and promises, and for the purpose of executing such scheme and artifice and attempting to do so, unlawfully, willfully and knowingly did cause to be transmitted by means of wire communications in interstate commerce writings, signs, signals and sounds in violation of Title 18 U.S.C. § 1343, all in violation of Title 18 U.S.C. §§ 371 and 2.
38. In furtherance of the conspiracy and to achieve the objects thereof, the defendants, Ron Jones... and Arland Clark, and their co-conspirators, known and unknown, committed and caused to be committed the following overt acts, among others, in the District of South Dakota and elsewhere:
a. On or about December, 2004, the defendants, Ron Jones and Arland Clark, met with existing and potential investors at a Christmas party arranged by Jones at the Spearfish Canyon Lodge, near Spearfish, South Dakota. At that time, Jones, assisted by Clark, discussed with potential investors the merits of investing with Plato Systems.
b. On or about between May 15, 2004, and July 1, 2004, the defendant, Ron Jones, met with prospective investors at the BayLeaf Cafe, Spearfish, South Dakota, and gave a presentation on Plato Systems to existing and potential investors seeking their investments.
COUNT 12: Wire Fraud (18 U.S.C. §§ 1343 & 2) Payments by Investors to Jones by Wire
39. The allegations in paragraphs 1 through 37 inclusive are hereby realleged and incorporated by reference as though fully set forth herein for the purpose of establishing the existence of a scheme and artifice to defraud.
On or about the dates set forth below, in the District of South Dakota and elsewhere, the defendants, Ron Jones... and Ar1and Clark, aiding and abetting each other, having devised and intending to devise a scheme and artifice to defraud and for obtaining money and property by means of false and fraudulent pretenses, representations and promises, for the purpose of executing such scheme and artifice and attempting to do so, unlawfully, willfully and knowingly did cause to be transmitted by means of wire communications in interstate commerce writings, signs, signals and sounds, to wit, the defendants, Ron Jones... and Ar1and Clark, caused the following interstate wire transmissions to be made in furtherance of the scheme:
COUNT 71: Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity (18 U.S.C. § 1957)
47. On or about the following dates, in the District of South Dakota and elsewhere, the defendant Ron Jones... did knowingly engage and attempt to engage in the following monetary transactions by, through, and to a financial institution, affecting interstate and foreign commerce, in criminally derived property of a value greater than $10, 000, that is, transfers of funds, such property having been derived from a specified unlawful activity, that is, wire fraud:
( Id., Docket 103 at pp. 1, 12-15 & 24).
At the change of plea hearing the court accepted Mr. Jones' guilty pleas. ( Id., Docket 336 at pp. 28-29). A presentence investigation report ("PSR") was ordered and a sentencing hearing was scheduled for January 30, 2012. Id. at pp. 44-45; see also id., Docket 299.
On January 25, 2012, Mr. Jones filed a motion to withdraw his guilty pleas. ( Id., Docket 333). A hearing was held on Mr. Jones' motion on January 27, 2012. ( Id., Docket 339). During the hearing, Mr. Jones orally moved to withdraw the motion to withdraw his guilty pleas. Id .; see also Docket 368 at pp. 2. The court orally granted Mr. Jones' motion. ( Id., Docket 368 at p. 6). A written order was subsequently filed. ( Id., Docket 349).
Mr. Jones' sentencing was held on January 30, 2012. ( Id., Docket 348; see also id., Docket 366). Following a two-hour hearing, the court sentenced Mr. Jones to a term of imprisonment on each count of conviction as follows: count 1, 60 months; count 12, 96 months; and count 71, 96 months, to all run concurrently. ( Id., Dockets 348 at p. 1 & 350 at p. 2).
The court reviews de novo those portions of the report and recommendation which are the subject of objections. Thompson v. Nix, 897 F.2d 356, 357-58 (8th Cir. 1990); 28 U.S.C. § 636(b)(l). The court may then "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1).
Mr. Jones' objections are summarized as follows:
1. The magistrate judge erred in concluding that whether Plato Systems was a legitimate business is irrelevant;
2. The magistrate judge erred by failing to find that all non-company expenses were paid from Mr. Jones' salary from Plato Systems;
3. The magistrate judge erred in concluding Attorney Ellery Grey was not ineffective counsel;
4. The magistrate erred in concluding Mr. Jones is not entitled to consideration of his exhausted claims because he is actually innocent; and
5. The magistrate judge erred in concluding Mr. Jones' claim of prosecutorial misconduct was procedurally defaulted.
(Docket 51). Mr. Jones' later supplements repeat the factual basis for these claims and need not be addressed. Each of Mr. Jones' objections will be separately analyzed.
Mr. Jones' objection asserts the magistrate judge erred by concluding that whether Plato Systems was a legitimate business concern is irrelevant. Id. at p. 1. He claims the case authority relied upon by the magistrate judge, United States v. Hawkey, 148 F.3d 920 (8th Cir. 1998), is "dramatically different from my case." Id. at pp. 16-17. Mr. Jones argues "the investors in Plato Systems knew that their investments, not contributions, were to be used to pay the expenses necessary to start the business, including salaries for the officers and employees working full-time on the business." Id. at p. 17.
This objection appears in the context of the magistrate judge's analysis of Mr. Jones' claim of ineffective assistance by his attorney Ellery Grey. Mr. Jones claims his attorney failed to argue "that Mr. Jones had legitimately been conducting business in Germany for 12 years and that DHS [the Department of Homeland Security] was responsible for ruining that business." (Docket 50 at p. 46). By Mr. Jones' claim, his attorney was also ineffective because he failed to ask a German deponent to demonstrate that the Plato Systems software actually worked. Id. at p. 47. Finally, Mr. Jones claims his attorney was ineffective because he "refused to depose 38 German witnesses who could have testified that DHS put Plato out of business." Id. at p. 48.
The magistrate judge found "Mr. Jones cannot show that he was prejudiced by Mr. Grey... because whether Plato was a legitimate business or not was not relevant to Mr. Jones' guilt." Id. at p. 47. "Under Hawkey, whether Plato was a legitimate business at one time and the reason for its going out of business is simply irrelevant." Id. at p. 48. The magistrate judge concluded:
[U]nder Hawkey, whether Plato was a legitimate business or wholly fraudulent does not determine whether Mr. Jones was guilty of wire fraud or money laundering. Plato could have been, like the charitable event in Hawkey, a legitimate enterprise from which Mr. Jones fraudulently solicited or fraudulently diverted funds, or it could have been a thoroughly fraudulent Ponzi-like scheme. In the eyes of the law, either could give rise to criminal liability for Mr. Jones.
Id. at p. 37 (referencing Hawkey, 148 F.3d at 923-24).
In the objections to the presentence investigation report ("PSR Objections") in advance of sentencing, Attorney Grey argued Plato Systems, although in its organizational phase, was a legitimate company:
Ron Jones began working on the Plato Systems' business concept much earlier, however, the Defendant does agree that the Plato Systems business was incorporated in the State of Colorado in December 2003....;
[I]t was understood that the company was in a start-up phase and that the board had not been officially empanelled and that common shares had been issued, rather, these were plans set to take place after the company became viable and had sufficient cash flow....;
The Defendant maintains that it was his intent that the program launch and be a success. Defendant did, indeed make two attempts to launch in partnership with American Express and with Talkline GmbH. Both fell short of expectations....;
Plato Systems was not in a state of viability, and additionally was not in a state of production and at that time had no current customers....;
A review of the correspondence Defendant Jones sent to various investors establishes that Defendant Jones was up front about the status of the company and that the business was in a start-up stage....;
Plato Systems did have a working model early on in 2001 known as Adwin, developed in partnership with OgilvyOne Worldwide Deutschland. This software system was shown extensively throughout Germany. Mr. Scheunpflug, in fact was brought into the effort by the programmer of Adwin and asked to begin work on "Version 2." Version 2 became known as ViDialog....; and
A review of the information that the Defendant sent to investors, as well as the recorded Bay Leaf Cafe presentation and the Christmas presentation establish that the Defendant is clear that the program and company itself were in the start-up phases and that in some cases money and investment are necessary to develop the proper tools.
PSR Objections ¶¶ 1, 4, 8, & 10-13. Through his attorney, Mr. Jones acknowledged "Plato Systems was a legitimate business venture, however, as the Defendant conceded and has admitted to, there were certain aspects of Plato Systems that were fraudulent. However, this fact does not mean that the entire operation was wholly fraudulent and that all income derived therein would as a consequence be fraudulent." Id . ¶ 28.
For consideration at sentencing, Mr. Grey submitted 32 support letters and of those 12 were from the European entities and their employees with whom Mr. Jones worked during the time period 2001-2010. See Support Letters of January 3, 2012, Exhibits 1, 2, 14, 15, 17, 21 & 22; Support Letters of January 13, 2012, Exhibits 2, 4 & 5; and Support Letters of January 20, 2012, Exhibits 1 & 2.
The legitimacy of Plato Systems was discussed during the sentencing hearing. Mr. Grey stated "[i]t's been our position throughout the litigation, as it is today, that this venture [Plato Systems] was a real idea...." (CR-10-50015-01, Docket 366 at p. 8:23-25). He explained "[i]n my sentencing memorandum this morning I cited United States versus Hawkey.... On appeal, the Eighth Circuit reviewed that case and found that even though Mr. Hawkey made sure that the charitable events took place, a fraud was nevertheless still in place because Mr. Hawkey had diverted those funds. We are in a very similar situation here and to think that case is controlling...." Id. at p. 9:14-10:3. Mr. Grey discussed resolution of the legitimacy issue:
Mr. Jones is here today to accept responsibility. He spent money he shouldn't have. There are facts at the beginning of the presentence, specifically at [paragraphs] 1 through 39, which Mr. Peterman and I were unable to completely resolve. We sat down and discussed this issue at length and it appeared to us that it would take quite a bit of effort to litigate these issues. And basically, it boils down to whether or not Plato is a legitimate business venture or not. Now, at face value that might sound like a very important issue. But as Mr. Jones is here to accept responsibility for what he actually did, it occurred to us that bringing witnesses in from... across the country and overseas to litigate that point, would ultimately not bring much to this Court in terms of using its sentencing discretion. And I say that because whether or not Plato Systems is real, Mr. Jones is still going to be sentenced with a comment that he admitted [what] he had done. And assuming that Plato Systems is real, there's certainly an argument that the.... government can make that says that's not a mitigating factor, indeed they have done that.
So at this point Mr. Peterman and I have agreed not to litigate these particular issues because of time and complexity involved and, frankly, I am not arguing that as a mitigating factor. So we decided why bring all this before the Court if it ...