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Picardi v. United States

United States District Court, D. South Dakota, Western Division

September 25, 2018

EDWARD J.S. PICARDI, M.D, Petitioner,
v.
UNITED STATES OF AMERICA, Respondent.

          ORDER

          JEFFREY L. VIKEN CHIEF JUDGE

         INTRODUCTION

         Petitioner Edward J.S. Picardi, M.D., [1] filed a petition (Docket 1) pursuant to 28 U.S.C. § 2255 to vacate or set aside his criminal conviction in United States v. Edward J.S. Picardi, M.D., CR.10-50092 (D.S.D. 2013). Based on the 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). The government moved to dismiss the petition. (Docket 23). The magistrate judge issued a report recommending the court grant the government's motion to dismiss. (Docket 28). Petitioner timely filed objections to the report and recommendation. (Docket 34). For the reasons stated below, petitioner's objections are overruled and the report and recommendation is adopted as modified by this order.

         PROCEDURAL HISTORY

         Picardi was charged on September 21, 2010, in a multi-count indictment. (CR. Docket 1). On October 12, 2011, a superseding indictment was filed. (CR. Docket 75). A second superseding indictment was filed on August 29, 2012. (CR. Docket 141). The second superseding indictment charged Picardi with counts 1-5: income tax evasion for the years 1999 through 2003, inclusive, in violation 26 U.S.C. § 7201; counts 6-10: making and subscribing to a false Form 1040 Schedule B for the years 2005 through 2009, inclusive, in violation of 26 U.S.C. § 7206(1); and counts 11-13: failing to disclose a financial interest in a foreign financial account with an aggregate value in excess of $10, 000 for the years 2007 through 2009, inclusive, in violation of 31 U.S.C. §§ 5314 and 5322 and 31 CFR §§ 103.24 and 103.27(c). Id.

         Attorney Robert W.Van Norman of Rapid City, South Dakota, and Attorney Jennifer Hinkebein Culotta, who appeared pro hac vice from New Albany, Indiana, represented Picardi throughout the criminal trial. (Docket 28 at pp. 3-4).[2] On September 17, 2012, the jury trial commenced and took 12 days to complete. (CR. Docket 197). On October 5, 2012, the jury found Picardi guilty of all 13 counts of the second superseding indictment.[3] (CR. Docket 196). Post-trial, Attorney Culotta withdrew and Attorney John R. Murphy of Rapid City joined Attorney Van Norman to represent Picardi at sentencing. (Docket 28 at p. 15; see also CR. Dockets 202 & 206).

         On May 7, 2013, the court sentenced Picardi to “60 months on Counts 1-5; 36 months on Counts 6-10; and 60 months on Counts 11-13. All counts to run concurrently for a total sentence of 60 months.” (CR. Docket 250 at p. 2). The defendant was placed on one year of supervised release on each count to run concurrently. Id. at p. 3. On January 10, 2014, the United States Court of Appeals for the Eighth Circuit affirmed the convictions. (CR. Docket 264; see also United States v. Picardi, 739 F.3d 1118 (8th Cir. 2014)).

         On June 22, 2015, Picardi timely filed a petition pursuant to 28 U.S.C. § 2255 (“§ 2255 Petition”) to vacate or set aside his criminal conviction. (Docket 1). Attorney Murphy represented Picardi during his direct appeal to the United States Court of Appeals for the Eighth Circuit and through the filing of petitioner's objections to the report and recommendation in this § 2255 proceeding.[4] (Docket 28 at p. 32; see also Docket 37).

         Attached to the § 2255 Petition was a 33-page opinion letter dated June 15, 2015, of Attorney John Colvin (“Colvin Letter”). (Docket 1-1). The government filed a motion to exclude the Colvin Letter. (Dockets 14 & 15). The government filed a motion to dismiss the § 2255 Petition pursuant to Fed.R.Civ.P. 12(b)(6) and 12(h)(3). (Docket 23). Petitioner filed briefs in opposition to both of the government's motions. (Dockets 25 & 27).

         The magistrate judge filed a report and recommendation (“R&R”). (Docket 28). The magistrate judge denied the government's motion to strike, indicating the Colvin Letter would be considered as “a brief from a lawyer representing a client-it merely sets forth the law and the facts upon which Mr. Picardi relies in support of his grounds for relief . . . .” Id. at p. 25. The R&R recommended the government's motion to dismiss be granted and Picardi's § 2255 Petition be denied. Id. at p. 95. Picardi timely filed his objections to the report and recommendation. (Docket 34).

         MOOTNESS

         Picardi completed the period of incarceration imposed in the judgment and on September 15, 2017, his period of supervised release expired. (CR. Docket 270). Picardi is no longer subject to the jurisdiction of the court in the criminal case.

         “A petition for habeas corpus must be filed while the petitioner is in custody.” Leonard v. Nix, 55 F.3d 370, 372-73 (8th Cir. 1995) (referencing Maleng v. Cook, 490 U.S. 488 (1989)). “If a petitioner, though released from custody, faces sufficient repercussions from his allegedly unlawful punishment, the case is not moot.” Id. (referencing Carafas v. LaVallee, 391 U.S. 234, 239-40 (1968) (a habeas petitioner “should not be . . . required to bear the consequences of [an] assertedly unlawful conviction simply because the path has been so long that he has served his sentence”). “Collateral consequences are presumed to stem from a criminal conviction even after release.” Id.

         “[I]n Pollard v. United States, 352 U.S. 354 (1957), the [Supreme] Court abandoned all inquiry into the actual existence of specific collateral consequences and in effect presumed that they existed.” Sibron v. New York, 392 U.S. 40, 55 (1968). “[T]he Court concluded that ‘(t)he possibility of consequences collateral to the imposition of sentence is sufficiently substantial to justify our dealing with the merits.' ” Id. (citing Pollard, 352 U.S. at 358). “The Court thus acknowledged the obvious fact of life that most criminal convictions do in fact entail adverse collateral legal consequences. The mere ‘possibility' that this will be the case is enough to preserve a criminal case from ending ‘ignominiously in the limbo of mootness.' ” Id. (citing Parker v. Ellis, 362 U.S. 574, 577 (1960) (dissenting opinion)).

         Picardi's § 2255 petition was filed on June 22, 2015, while he was in custody under the criminal judgment. (Docket 1 ¶ 24). Although Picardi completed his imprisonment and supervised release prior to the court's adjudication of his § 2255 petition, “[t]he case is nevertheless not moot, because the federal conviction could have collateral consequences in the future, and [Picardi] was still in federal custody when he instituted these § 2255 proceedings . . . .” Nguyen v. United States, 114 F.3d 699, 703 (8th Cir. 1997) (citing Clemmons v. United States, 721 F.2d 235, 237 n.3 (8th Cir. 1983)). It was Picardi's conviction which resulted in the revocation of his license to practice medicine. This collateral consequence “is sufficiently substantial to justify [the court] dealing with the merits” of his § 2255 petition. Sibron, 392 U.S. at 55 (internal citation omitted).

         The court finds Picardi's § 2255 Petition is not moot.

         PETITIONER'S OBJECTIONS

         Petitioner's objections are broken down into six principal categories. Those categories are:

1. The magistrate judge was unduly prejudiced against petitioner by referring to him as Mr. Picardi as opposed to Dr. Picardi.
2. The magistrate judge erred by discounting the credibility of the § 2255 Petition as an unsworn document and because the petition was not supported by documentation.
3. The magistrate judge erred by confusing the identity of the entities engaged in the financial transactions evidenced at trial.
4. The magistrate judge erred by finding petitioner's challenge to the tax laws as void-for-vagueness was procedurally defaulted.
5. The magistrate judge erred by failing to find petitioner received ineffective assistance of counsel at trial.
6. The magistrate judge erred by recommending that no evidentiary hearing be held on the § 2255 Petition.

(Docket 34).

         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)(1). 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).

         Each of petitioner's objections will be separately analyzed.

         ANALYSIS

         1. THE MAGISTRATE JUDGE WAS UNDULY PREJUDICED AGAINST PETITIONER BY REFERRING TO HIM AS MR. PICARDI AS OPPOSED TO DR. PICARDI

         Petitioner objects to the magistrate judge's decision to refer to him as Mr. Picardi as opposed to Dr. Picardi. (Docket 34 at pp. 1-3). He argues the magistrate judge engaged in “over-reaching” by not referring to him as Dr. Picardi. Id. at p. 2. Picardi acknowledges the South Dakota Board of Medical and Osteopathic Examiners revoked his license to practice medicine but claims “it did not require Dr. Picardi to cease using the term.” Id. Picardi claims “[t]he magistrate appears to have gone out of its way to demote Petitioner in status . . . . It was improper for the magistrate to make this an issue and it was inappropriate to find against Dr. Picardi on the matter in the absence of clear authority justifying its position.” Id. at p. 2-3.

         In footnote 1, the court addressed its finding about how to address petitioner throughout this order. The magistrate judge went through the same process in developing the R&R. (Docket 28 at p. 3 n.2). The designation of a title to petitioner throughout the report and this order does not suggest either the magistrate judge or the court is minimizing petitioner's right to have the content of his § 2255 Petition evaluated under the same criteria afforded to every other defendant who files a petition under § 2255. The court finds the magistrate judge gave petitioner the proper level of consideration of his § 2255 Petition.

         Picardi's objection on this basis is overruled.

         2. THE MAGISTRATE JUDGE ERRED BY DISCOUNTING THE CREDIBILITY OF THE § 2255 PETITION AS AN UNSWORN DOCUMENT AND BECAUSE THE PETITION WAS NOT SUPPORTED BY DOCUMENTATION

         The R&R “note[d] that Mr. Picardi's § 2255 motion is signed by him, but not under penalty of perjury. . . . Instead, he says the statements in the motion are true ‘to the best of his knowledge and belief.' ” (Docket 28 at pp. 83-84) (referencing Docket 1 at p. 31). Particularly addressing Picardi's claim of ineffective assistance of counsel regarding plea offers, which will be analyzed later in this order, the R&R observed Picardi's declaration was “a far cry from establishing the truth of the allegations concerning the plea offers. . . . It is curious to the court that Mr. Picardi provides none of these supporting documents to prove his claim.” Id. at p. 84.

         Petitioner objects to the magistrate judge's statement that the petition was signed by him, but not notarized. (Docket 34 at p. 3). He claims “[t]he magistrate notes this in such a way to cast doubt on the credibility of Dr. Picardi's allegations, particularly in regard to his ineffective assistance of counsel claims relating to the plea bargaining process. . . . The magistrate does not, in its discussion of this matter, point to any claims made by Dr. Picardi that are demonstrably false or where the absence of a notary signature would have changed the court's analysis.” Id. (referencing Docket 28 at pp. 83-84). He asserts “[t]o the extent the failure to notarize the Motion to Vacate is treated as an error by the district court, it should be treated as an error by habeas counsel, not Petitioner himself.” Id. at p. 4.

         Picardi contends he “did not err in failing to attach more documentation to his Motion to Vacate.” Id. at p. 5. He submits “[t]he magistrate insinuates that Dr. Picardi fabricated the claim that he was offered a misdemeanor cooperation deal.” Id. (referencing Docket 28 at 83-84). Petitioner argues “[t]he magistrate appears to be taking the position that it is a movant's burden to support his § 2255 claims with documentary evidence. Further, the tone of the magistrate's comments on the matter . . . suggests that it will determine a claim is false and subject to dismissal if documentary proof is not provided.” Id. at p. 6 (referencing Docket 28 at p. 84). Petitioner argues whether he “was permitted to attach anything to his Motion to Vacate was only resolved conclusively by the magistrate a few pages before . . . fault[ing] Picardi for not attaching more.” Id. (referencing Docket 28 at pp. 24-25). Petitioner claims he “met his burden . . . [and] provided a detailed recitation of facts supporting his claims in regard to the issue of plea negotiations, plea bargaining, and cooperation.” Id. at p. 7.

         Picardi submits the magistrate judge's demand “for documentary proof is also unnecessary in light of the facts . . . in this case . . . .” Id. Petitioner refers to an October 27, 2011, motion hearing and an affidavit by Attorney Culotta in the criminal case. Id. at p. 8 (referencing Dockets 34-11 and CR. Docket 130 ¶ 14). According to Picardi, substantiation of his claim is bolstered by Attorney Van Norman's affidavit in this habeas proceeding. Id. (referencing Docket 11 at p. 11).

         What Picardi fails to acknowledge is that the magistrate judge appeared to be perplexed by his failure to produce any documentary evidence of a proffer agreement, plea discussions between his attorneys and government counsel, or a proposed plea agreement in response to the affidavits of Attorney Culotta and Attorney Van Norman. See Dockets 11, 12, 25 and 28 at p. 84-86. While supporting documentation was not necessary at the time the § 2255 Petition was filed, it was appropriate to expect petitioner to file plea offer documentation in response to the attorneys' affidavits and the government's brief. The R&R addressed this deficiency:

The court notes it is customary for the government to make all plea offers in writing, including queen-for-a-day proffer offers. Here, Ms. Culotta was in Indiana and the prosecutor was in South Dakota, making it even more likely that any offers made were reduced to writing. Furthermore, it is highly likely that Ms. Culotta's responses to the government and to Mr. Picardi, both of whom were in South Dakota, would also likely have been written responses. It is curious to the court that Mr. Picardi provides none of these supporting documents to prove his claim. . . .

(Docket 28 at p. 84).

         As the R&R points out, Picardi's § 2255 Petition asserted Attorney Culotta advised the trial court there was never a plea offer made to him. Id. The R&R expresses the frustration of the magistrate judge:

Mr. Picardi does not enlighten this court as to which of the many hearings in his case this statement was made or even the date of the hearing. He also stated that in a previously filed affidavit, Ms. Culotta stated the government had offered Picardi a misdemeanor plea that Picardi declined. Again, Mr. Picardi does not tell the court the date of the affidavit or its location within the court's docket.

Id. The R&R specifically discusses Attorney Culotta's August 8, 2012, affidavit. (Docket 28 at pp. 84-85) (referencing CR. Docket 130). After incorporating a portion of Attorney Culotta's affidavit in the R&R, the magistrate judge expressed a final frustration with Picardi's presentation. “This court is unable to verify that Ms. Culotta at some other time made a conflicting statement to the trial court in a hearing because of the lack of detail provided by Mr. Picardi.” Id. at p. 85.

         In neither his § 2255 Petition nor his response to the government's motion to dismiss did Picardi disclose to the magistrate judge the date of Attorney Culotta's affidavit or its location in the CM/ECF index. Id. It was not until petitioner's objections to the R&R that Picardi clarified his earlier references were to the October 27, 2011, hearing and Attorney Culotta's August 8, 2012, affidavit. See Docket 34-11[5] and CR. Docket 130. Only as an exhibit to petitioner's objections to the R&R did Picardi disclose the existence of a proffer agreement proposed by Assistant United States Attorney Robert Mandel. See Docket 34-1. The proffer agreement was conveyed to Attorney Culotta on June 11, 2010, by Assistant United States Attorney Anna Forbes of the United States Attorney's Office in the District of West Virginia.[6] (Docket 34 at pp. 9-10) (referencing Docket 34-2). The proffer agreement was not utilized by the government and Picardi.

         E-mails attached to Picardi's objections to the R&R addressed discussions between AUSA Forbes and Attorney Culotta and her discussions with Picardi regarding the proffer agreement and plea negotiations. (Dockets 34-2 through 34-7 & 34-9). These e-mails were not presented to the magistrate judge for consideration in evaluating Picardi's § 2255 petition and the government's motion to dismiss.

         While Picardi was not required to attach documentary evidence in support of his § 2255 petition, it is customary in the District of South Dakota to permit petitioners to attach documents to their petition and to provide the court with specific references as to where significant evidence can be located in response to the government's submission. The R&R discusses the rules regarding the attachment of exhibits in § 2255 proceedings. (Docket 28 at pp. 23-24). “The court believes Mr. Picardi's reading of 2255 Rule 4(b) is correct: that rule contemplates that exhibits may be submitted with a 2255 motion to explain the movant's claims for relief and the court may consider those exhibits in its initial review of the motion.” Id. at p. 24 (emphasis omitted).

         Picardi specifically argued for consideration of the Colvin Letter and a United States Senate subcommittee report, Tax Haven Abuses: The Enablers, The Tools and Secrecy, which were attached to his initial § 2255 submission. See Dockets 1-1 and 1-2 (some capitalization omitted). It would have been beneficial to the analysis of the § 2255 petition had Picardi provided to the magistrate judge the documents attached to his objections. The court finds the magistrate judge's comments do not constitute error and do not impact the ultimate conclusion of the R&R. Petitioner's second objection to the R&R is overruled.

         3. THE MAGISTRATE JUDGE ERRED BY CONFUSING THE IDENTITY OF THE ENTITIES ENGAGED IN THE FINANCIAL TRANSACTIONS EVIDENCED AT TRIAL

         Petitioner objects to the R&R on the basis the magistrate judge erroneously “meld[ed] . . . entities and . . . this mistake incorrectly led [the magistrate judge] to conclude that there was overwhelming evidence of guilt established at trial.” (Docket 34 at p. 24) (referencing Docket 28 at p. 77). Picardi contends that “although the indictment refers to E & S International, Limited, the magistrate summarizes the charges as being based on Dr. Picardi routing income through various entities, with the bulk of the funds ending up in the ‘E & S Trust.'. . . This is not the case and not supported by the record. The funds remained in other entities; there is no evidence that they were ever transferred to the E & S Trust.” Id. (referencing Docket 28 at p. 3) (referencing CR. Docket 141).

         Picardi argues “[w]hen identifying evidence of Dr. Picardi's control over assets, the magistrate asserts that: the E & S Trust was where deferred income was deposited after being channeled through intermediate entities; that a $1, 200, 000.00 line of credit was tied or secured by the E & S Trust; that Picardi transferred $200, 000.00 out of the E & S Trust and then deposited it back into the trust; and, that Picardi had access to information about the trust's investments.” (Docket 34 at pp. 24-25) (referencing Docket 28 at pp. 6-7, 13-14, 60 & 81). Petitioner submits “[t]hose assertions - which the magistrate identifies as overwhelming evidence of control . . . ― are not accurate. The government never presented evidence that Picardi took loans, secured lines of credit, or transferred money in and out of the E & S Trust.” Id. at p. 25 (referencing Docket 28 at pp. 70, 79, 83-84 & 94; further referencing by way of example, CR. Docket 220 at p. 166) (discussing loan arrangements between E & S International, Limited, and Associated Enterprises, Ltd. (“AEL”)). He argues “[w]hat the government did, in order to confuse and deceive the jury, was talk about transfers of money and loans and lines of credit in and out of AEL, the Royal Bank of Scotland, and E & S International, Limited. Then, the government talked about Dr. Picardi's control over the E & S Trust. It did this so the jury would infer that these were all one and the same, and that control over the trust equated with control over the other entities.” Id. at p. 26. Picardi contends “[t]his appears to be the erroneous inference also drawn by the magistrate.” Id. Picardi argues this was “not a harmless mistake. It led the magistrate to impute evidence of Dr. Picardi's control over the E & S Trust to transactions involving E & S International, Limited, and other organizations.” Id.

         TRIAL EVIDENCE

         IRS Special Agent Christopher Wright described the employment contract between Picardi and Montrain Services, Limited, (“Montrain”) of Dublin, Ireland. See CR. Docket 222 at pp. 120:14-127:15 and Trial Exhibit 75. One provision of the employment agreement was that Picardi could not “encumber, commute, borrow against, dispose of, or [as]sign the right to receive . . . payments” from any funds received by Montrain. (CR. Docket 220 at p. 126:13-20) (referencing Trial Exhibit 75, Appendix A ¶ 10(F)).

         Agent Wright explained that after funds were received by Montrain the money passed through a number of foreign entities before ending up in an account in E & S International, Ltd. Id. at pp. 109:4-110:9. E & S International, Ltd., was created on the Caribbean island of Nevis. Id. at p. 110:8-11. E & S International Trust is a separate company formed in New Zealand. Id. at p. 110:12-14. Picardi and his wife are the sole stockholders and principal beneficiaries of E & S International Trust which owns the stock of E & S International, Ltd. Id. at p. 110:12-25; see also Trial Exhibit 224. Elfin Trust Company Limited was the trustee of E & S International Trust.[7] (CR. Docket 220 at p. 158:8-10; Trial Exhibits 224 at p. 2 and 239 at pp. 4505 & 4511-12).

         Agent Wright testified that in June 1996, before funds began to flow to Montrain, Picardi was asking Attorney Kritt about gaining access to the money through E & S International Trust. (CR. Docket 220 at pp. 130:11-132:9) (referencing Trial Exhibit 62). In the letter Picardi confirmed receiving $2, 500 from Morne' deVilliers to be delivered to the trustee of E & S International Trust and used as the initial corpus of the trust. (Trial Exhibit 62 at p. 1). Picardi also expresses reservations to Attorney Kritt about Picardi's relationship to the “IBC and no specifics on how access is gained to the funds in the IBC.”[8] Id. at p. 2. In a June 11, 1996, letter marked “CONFIDENTIAL ATTORNEY/CLIENT PRIVILEGED COMMUNICATION” Attorney Kritt cautioned Picardi about being directly involved in the creation of the trust:

I would not recommend that you use the statement that you drew up. The reason a foreign grantor is used is to avoid the Controlled Foreign Corporation rules. The only way that the IRS can attack the Foreign Trust is to attack the legitimacy of the grantor. If questioned, we will be required to demonstrate that this trust was created by Morne's independent act. It is crucial that there is a source document that verifies that the trust was funded by Morne'. Rightly or wrongly, the IRS would contend that the note you drafted is self serving.

(Trial Exhibit 313 at p. 1) (capitalization in original). In the end, Mr. deVilliers did not set up E & S International Trust, but rather Picardi established the trust through Shane Quinn, a friend in New Zealand. (CR. Docket 220 at pp. 132:12-134:13; Trial Exhibit 224).

         In his June 11, 1996, letter Attorney Kritt advised Picardi:

Montrain will invest the money however you like (within reason), including putting the funds in an IBC whose stock is owned by the E & S International Trust. . . .
I caution you about referring to these funds as yours. Because of tax laws, these funds are yours only when you are entitled to withdraw them according to your employment agreement with Montrain. You will be able to borrow these funds prior to the withdrawal date contained in the employment agreement if you so desire. . . .
The IBC's stock is owned by the E & S International Trust. You, of course, are the primary beneficiary of the E & S International Trust, you have the right to remove and replace its trustees and the power to appoint the property of the trust upon your death. Consequently, you have control of the trust, and being in control of the trust, you have control of any corporation in which the trust owns the equity.

(Trial Exhibit 313 at p. 3) (parenthesis in original). Agent Wright considered Attorney Kritt's explanation as confirmation that Picardi controlled the corporation which owned the accounts. (CR. Docket 220 at p. 160:14-16).

         The trust agreement between Elfin Trust Company and E & S International Trust established on November 18, 1996, specifically provided that “for so long as he is alive, the named Beneficiary, Edward J. Picardi, is empowered to remove, and replace any Trustee with or without cause at any time in his sole and absolute discretion without the consent of the Trustee or of any court of law or of any other person or entity.” (Trial Exhibit 224, Article VI(C)(3)) (bold omitted). In the event of Picardi's death, his wife Sandra retained the same rights of removal and replacement of the trustee. Id. The trust agreement authorized the trustee to “enter into financial transactions with . . . [and] may loan Trust assets to any Beneficiary, with or without security and with or without interest, or at below-market interest rates, for a period not to exceed the term of the Trust.” Id. at Article V(B).

         Agent Wright explained that once Picardi's money found its way into the account of E & S International it would create a loan with AEL on the Isle of Man, which in turn set up a line of credit for Picardi and Oak Ridge Ranch, LLC, which is owned by Picardi. (CR. Docket 220 at pp. 112:16-113:6). Picardi's line of credit was for $700, 000 and the line of credit for Oak Ridge Ranch, LLC, was $500, 000. Id. at p. 113:22-25. Picardi drew $250, 000 from his line of credit and Oak Ridge Ranch, LLC, drew $150, 000 from its line of credit. Id. at p. 114:14-21.

         The first of Picardi's draws on his line of credit occurred before E & S International Trust was established. Id. at pp. 163:23-164:9; see also Trial Exhibits 95-98. The funds were directed into Picardi's U.S. Bank account in Rapid City, South Dakota. (CR. Docket 220 at pp. 166:21-166:25 (referencing Trial Exhibits 98 & 99) and pp. 173:4-174:22 and 175:1-21) (referencing Trial Exhibits 314 & 202). Picardi thanked Attorney Kritt for expediting the line of credit and asked for confirmation that any interest payments, after deducting AEL's fee, would be placed in E & S International. (Trial Exhibit 100) (Picardi's inquiry did not specifically reference E & S International, Ltd., or E & S International Trust).

         Picardi executed the certificate of organization of Oak Ridge Ranch, LLC, on July 16, 2002. (Trial Exhibit 168). The draw on the line of credit for Oak Ridge Ranch occurred on July 16, 2002, but the paperwork for the transaction was not completed until December 2007. (CR. Docket 220 at pp. 181:8-182:16 and 183:5-25) (referencing Trial Exhibits 217 & 251).

         Agent Wright confirmed that Picardi's interest payments went back into E & S International, Ltd. Id. at p. 176:12-177:13 (referencing Trial Exhibit 256). Picardi took an IRS mortgage interest deduction for these payments on his tax returns. (CR. Docket 221 at p. 20:1-14). See also Exhibits 6 (1998 tax return, Schedule A ¶ 11); 7 (1999 tax return, Schedule A ¶ 11); and 8 (2000 tax return, Schedule A ¶ 11). Because Picardi was not paying principal and interest payments on the loans, the year-end loan balances in AEL's accounts were higher than at the beginning of the year. (CR. Docket 221 at p. 45:13-46:9) (referencing Trial Exhibit 161). AEL originally borrowed the money from E & S International, Ltd., and then lent the money back to it, so that as of December 31, 2002, E & S International, Ltd., had $389, 036 in loans receivables on its balance sheet. Id. at p. 50:21-25 (referencing Trial Exhibit 245 at p. 6786). Of the $400, 000 in loans to Picardi and Oak Ridge Ranch, LLC, as of December 31, 2002, he had only paid back principal of approximately $11, 000. Id. at p. 51:1-9. Agent Wright prepared a graph to illustrate of the balances due to E & S International, Ltd., from 1997 through 2007. (Trial Exhibit 316).

         Another example of Picardi's control over the funds in E & S International, Ltd., involved a plan to protect his property in South Africa. In February 2000, Picardi wrote Attorney Kritt advising him of the plan to liquidate Picardi's hunting reserve, Onbedacht. (Trial Exhibit 147). In the event no bidders showed up for the property auction, Picardi wanted a representative at the auction. Id. If successful, Picardi planned to take the property as a purchaser, as opposed to remaining only the liquating owner whose money would be subject to creditors' claims. Id. To accomplish this plan, Picardi intended to take out a $150, 000 to $200, 000 loan from E & S International and have the money wired to a Republic of South Africa bank account. Id. On May 6, 2000, Picardi directed Charles Freeman, one of the directors of E & S International, Ltd., to transfer $200, 000 to set up his bid. (Trial Exhibit 148). In the same letter, Picardi stated to his bidder that “E and S International Limited wants to purchase [the real estate in the Province of the West Cape of South Africa]” under specific terms and conditions. Id.

         Agent Wright explained the money trail from E & S International, Ltd., to a Royal Bank of Scotland account in South Africa. (CR. Docket 221 at pp. 34:10-36:19 (referencing Trial Exhibit 149). AEL was not used as an intermediary in this transaction. Id. at p. 37:1-3. When the purchase of the property fell through, Picardi's South African agent deducted the fees and expenses incurred for communicating with Picardi and traveling to the auction site. (Trial Exhibit 149). The remaining funds were redeposited to the Royal Bank of Scotland account of E & S International, Ltd. Id. at p. 36:13-25 (referencing Trial Exhibit 149).

         During the trial government counsel and Agent Wright used “E & S” as a phrase for E & S International, Ltd., or E & S International Trust depending on the context of the questions posed. See CR. Docket 222 at pp. 106:3-25; Id. at pp. 110:12-111:6; Id. at pp. 171:14-172:19; Id. at p. 178:4-19 (referencing Trial Exhibit 218); Id. at pp. 179:13-180:9 (referencing Trial Exhibit 223); 193:2-194:1 (referencing Trial Exhibit 76); CR. Docket 221 at p. 20:11-13; Id. at p. 26:14-25; Id. at p. 31:11-16; Id. at pp. 32:23-33:4; Id. at p. 43:16-19 (referencing Trial Exhibit 151); Id. at p. 44:21-23; Id. at p. 46:10-16; Id. at p. 47:10-23; Id. at p. 48:9-12; Id. at p. 49:4-13; Id. at pp. 50:23-51:4; CR. Docket 222 at p. 146:21-24; CR. Docket 223 at p. 110:9-12; Id., at p. 111:13-17; Id. at p. 113:5-7; Id. at p. 115:12-7 & 20-22; Id. at p. 116:12-16; Id. at p. 118:3-10; CR. Docket 224 at pp. 137:22-138:2; Id. at p. 139:7-16; Id. at p. 140:11-21 (referencing Trial Exhibit 293); Id. at p. 141:6-8 (referencing Trial Exhibit 293); Id. at pp. 142:9-143:10; Id. at p. 146:6-13; CR. Docket 229 at p. 113:14-25; Id. at p. 114:12-13; Id. at p. 117:12-14.

         Government counsel continued this phrasing with IRS Senior Revenue Agent Marie Allen. (CR. Docket 224 at pp. 58:19-59:7 (referencing Trial Exhibit 188); Id. at p. 60:12-18 (referencing Trial Exhibit 188); Id. at p.71:1-22 (referencing Trial Exhibit 69); Id. at pp. 72:12-73:14 (referencing Trial Exhibit 69); Id. at p. 126:11-13. The government also used this phrasing in its cross-examination of Mr. Brennan, Ms. Lecy and Picardi. (CR. Docket 228 at p. 88:7-11; Id at p. 152:6-8; CR. Docket 229 at p. 96:1-17; Id. at p. 97:8-11; Id. at p. 109:18-19).

         Attorney Culotta used E & S Trust as a reference to E & S International Trust. See CR. Docket 223 at p. 3:17-19 (referencing Trial Exhibit 224). She used E & S as a reference to E & S International, Ltd. (CR. Docket 222 at p. 156:17-19 (referencing Trial Exhibit 218); CR. Docket 224 at p.71:1-22 (referencing Trial Exhibit 69); Id. at pp. 72:12-73:14 (referencing Trial Exhibit 69); CR. Docket 228 at p. 59:15-20; Docket 228 at pp. 74:24-75:4; Id. at p. 77:14-16. Defense witness John Brennan used E & S as a reference to E & S International, Ltd. (CR. Docket 228 at p. 74:1-9: Id. at p. 102:5-8). Picardi used E & S Trust as a reference to E & S International Trust. (CR. Docket 221 at p. 43:16-19) (referencing Trial Exhibit 151); CR. Docket 222 at p. 150:8-15 (referencing Trial Exhibit 613); CR. Docket 224 at p. 59:4-7 (referencing Trial Exhibit 188).

         Against the more detailed summary of the trial evidence described above, it is somewhat confusing that the magistrate judge used an even more general designation of E & S Trust to explain the trail of Picardi's money. It is clear from the overall content of the R&R that the magistrate judge grasped the relationship between E & S International, Ltd., E & S International Trust and Picardi.

         Petitioner objects to the statement of the magistrate judge “that ‘Picardi testified he knew the money funding his loans would come from the E & S trust and, when he repaid the loans, all but 1% of the repayments would go back into E & S.' ” (Docket 34 at p. 28) (referencing Docket 28 at pp. 96-97). In response to government counsel's question about money coming back to the E & S [International, Ltd.] accounts, Picardi's testimony was vague: “[i]t was my understanding that there was funds from the pension would be placed in escrow into a pool by this company [AEL] . . . and that loans would be available through the agreements that were made . . . . At the seminar they explained the loan interest, some of it, would go back into the International Business Corporation [E & S International, Ltd.].” (CR. Docket 229 at p. 96:1-14). Picardi denied owning E & S International, Ltd. “[T]hat's not mine, it's the business-it's the international corporation that they set up. . . . they set up the business corporation; I only found it afterwards because they used the same letters I did in my trust.” Id. at p. 96:16-22. Picardi claimed “[i]t's always been a blur to me . . . .” Id. at p. 96:24.

         Petitioner also objects to the magistrate judge's statement that “Picardi ‘testified that wiring the money to South Africa from the E & S Trust was Mr. Kritt's plan.' ” (Docket 34 at p. 28) (referencing Docket 28 at p. 13). Picardi claims he did not say this as he testified “the money used to facilitate the South African transaction came from Elfin, an overseas bank.” Id. (referencing CR. Docket 229 at pp. 51-52). Picardi did testify the money would go through Elfin to the South African bank account. Id. at p. 51:21-25. The objection to the R&R is disingenuous as Elfin Trust Company Limited was the trustee of E & S International Trust. (Trial Exhibit 224). Picardi knew he and his wife were the only shareholders in E & S International, Ltd., that they were the primary beneficiaries of E & S International Trust and that he ultimately controlled the trust. (Trial Exhibit 313 at p. 3).

         While E & S International Trust and E & S International, Ltd., are not one and the same entity, they are closely-held companies because Picardi and his wife owned all the stock in both, they were the principal beneficiaries of the trust and they were to receive all financial benefit derived from both companies. The trial evidence proved Picardi had authority over and exercised control of E & S International Trust and E & S International, Ltd. Contrary to petitioner's assertion, the government did not confuse or deceive the jury. The overwhelming weight of the evidence established beyond a reasonable doubt Picardi's guilt as to all 13 counts of conviction.

         For clarity, the factual references in the R&R are modified to be consistent with the factual summary above. Petitioner's third objection to the R&R is overruled.

         4. THE MAGISTRATE JUDGE ERRED BY FINDING PETITIONER'S CHALLENGE TO THE TAX LAWS AS VOID FOR VAGUENESS WAS PROCEDURALLY DEFAULTED

         The magistrate judge found Picardi did not raise the issue “that the tax laws he was convicted under violated his Due Process rights under the Fifth Amendment because they were void for vagueness. Mr. Picardi did not raise this issue before the district court, nor did he raise it on direct appeal to the Eighth Circuit.” (Docket 28 at p. 26). The magistrate judge found Picardi raised a “related issue of whether the jury should have been instructed on the void for vagueness theory, but that is different from affirmatively arguing that a law is unconstitutional because it is void for vagueness.” Id. Because he failed to raise the constitutional challenge in the direct appeal, the magistrate judge found “Picardi procedurally defaulted this issue . . . .” Id.

         Picardi contends “he did not procedurally default on this issue because the issue was fairly presented to the district court and Court of Appeals during the pendency of the criminal case.” (Docket 34 at p. 31). He asserts that during trial he “alleged that the tax laws at issue in his case were vague.” Id. (referencing CR. Dockets 154 at p. 15 and 230 at p. 37). Petitioner claims “he presented the issue through a proposed jury instruction, which was rejected by the district court.” Id. (referencing CR. Docket 230 at p. 37). Picardi submits his argument is strengthened because he “appeal[ed] the district court's denial of his [proposed] instruction.” Id. at p. 32. Petitioner acknowledges the United States Court of Appeals for the Eighth Circuit “rejected this approach. . . . The Court held that this matter should have been brought up as a legal argument prior to trial, presumably in the form of a motion to dismiss.” Id. at p. 33 (citing Picardi, 739 F.3d at 1126).

         Picardi argues “[a] claim has been fairly presented if the operative facts and legal theories upon which a habeas claim is based were previously presented to the underlying courts.” Id. (referencing Tamapua v. Shimoda, 796 F.2d 261, 262 (9th Cir. 1986); Peltier v. Henman, 997 F.2d 461, 473 (8th Cir. 1993)). Petitioner submits he “presented the operative facts and legal theories on direct appeal by challenging the district court's denial of his jury instruction. This was the only preserved manner in which the substance of Picardi's claim could be addressed. The substance of the issue was presented to the Court of Appeals.” Id.

         Petitioner's citation to Peltier as authority for raising the void-for-vagueness constitutional claim is misplaced. Peltier dealt with a successive federal habeas petition. “Insofar as Peltier's section 2255 motion raises . . . four issues, it constituted an abuse of the proceedings because Peltier could and should have raised those issues in his first section 2255 proceeding. Thus, under [McCleskey v. Zant, 499 U.S. 467 (1991)], his failure to do so there justified the district court's refusal to consider those issues in the present proceeding.” Peltier, 997 F.2d at 473. Peltier offers no guidance for analyzing a procedural default claim of the nature presented in Picardi's case. If anything, Peltier supports the court's conclusion that Picardi's failure to raise the void-for-vagueness claim is procedurally defaulted.

         Petitioner's reliance on Tamapua suffers an even worse fate. The decision was first abrogated on other grounds by Duncan v. Henry, 513 U.S. 364 (1995) (per curiam), and then abrogated by the United States Court of Appeals for the Ninth Circuit in McMonagle v. Meyer, 802 F.3d 1093, 1098 (9th Cir. 2015).

         The magistrate judge analyzed the issue under the proper legal standard. “Section 2255 movants are generally precluded from asserting claims that they failed to raise on direct appeal.” (Docket 28 at p. 26) (referencing United States v. Frady, 456 U.S. 152, 167-68 (1982); McNeal v. United States, 249 F.3d 747, 749 (8th Cir. 2001)). “When a § 2255 petitioner asserts a claim that is procedurally defaulted because it was not raised on direct appeal, the claim can only proceed after the petitioner has shown either: (1) actual innocence or (2) that the procedural default should be excused because there was both cause for the default and actual prejudice to the petitioner.” Id. at p. 21 (referencing Bousley v. United States, 523 U.S. 614, 621-22 (1998); McNeal, 249 F.3d at 749). “The requirement of cause . . . is based on the principle that petitioner must conduct a reasonable and diligent investigation aimed at including all relevant claims and grounds for relief . . . .” Id. at p. 27 (citing Cornman v. Armontrout, 959 F.2d 727, 729 (8th Cir. 1992)). “A demonstration of the ‘cause' element of the cause and prejudice test ‘must be something external to the petitioner' that ‘impeded' the petitioner's efforts.” Id. (citing Coleman v. Thompson, 501 U.S. 722, 753 (1991) (quoting Murray v. Carrier, 477 U.S. 478, 488 (1986)). The magistrate judge found Picardi did not demonstrate the “cause” element, so “prejudice need not be analyzed.” Id. at p. 27.

         Gleaning the fair representation standard from a review of petitions filed under 28 U.S.C. § 2254, courts are very particular as to what a petitioner must have raised in the earlier proceeding in order to preserve an issue for consideration in a federal habeas proceeding. In order to present a federal habeas petition “[i]t is not enough that all the facts necessary to support the federal claim were before the state courts . . . . In addition, the habeas petitioner must have ‘fairly presented' . . . the ‘substance' of his federal habeas corpus claim.” Anderson v. Harless, 459 U.S. 4, 6 (1982) (per curiam) (internal citations omitted). Presenting a claim to the district court that is merely similar to the federal habeas claim is insufficient to meet the fairly presented requirement. Duncan, 513 U.S. at 365-66 (“If state courts are to be given the opportunity to correct alleged violations of prisoners' federal rights, they must surely be alerted to the fact that the prisoners are asserting claims under the United States Constitution. If a habeas petitioner wishes to claim that an evidentiary ruling at a state court trial denied him the due process of law guaranteed by the Fourteenth Amendment, he must say so, not only in federal court, but in state court.”) (referencing Harless, 459 U.S. 4). “Both [Picard v. Connor, 404 U.S. 270 (1971)] and Harless emphasized that mere similarity of claims is insufficient to exhaust.” Id. at 366 (referencing Picard, 404 U.S. at 276; Harless, 459 U.S. at 6). “[I]t is not enough to make a general appeal to a constitutional guarantee as broad as due process to present the ‘substance' of such a claim to a state court.” Gray v. Netherland, 518 U.S. 152, 163 (1996).

         “To avoid a procedural default, the habeas petitioner must fairly present his claim to the [lower] court, that is, he must ‘present the same facts and legal theories to the state court that he later presents to the federal [habeas] court[].' ” Morris v. Norris, 83 F.3d 268, 270 (8th Cir. 1996) (citing Jones v. Jerrison, 20 F.3d 849, 854 (8th Cir. 1994)). “[H]abeas petitioners must have explicitly cited to the United States Constitution or federal case law in their direct appeal to preserve federal [habeas] review.” Id. (citing Luton v. Grandison, 44 F.3d 626, 628 (8th Cir. 1994); referencing Duncan, 513 U.S. 364).

         “In this circuit, to satisfy the ‘fairly presented' requirement, [a habeas petitioner is] required to ‘refer to a specific federal constitutional right, a particular constitutional provision, a federal constitutional case, or a . . . case raising a pertinent federal constitutional issue' in the [lower] court.” Abdullah v. Groose, 75 F.3d 408, 411-12 (8th Cir. 1996) (citing Ashker v. Leapley, 5 F.3d 1178, 1179 (8th Cir. 1993) (internal quotation and citation omitted). “[P]resenting a claim to the [lower] court[] that is merely similar to the federal habeas claim is insufficient to satisfy the fairly presented requirement.” Id. (referencing Duncan, 513 U.S. 364). “The legal basis for a claim presented in [lower] court must be ‘the substantial equivalent' of that relied upon in the federal petition.” Satter v. Class, 976 F.Supp. 879, 887 (D.S.D. 1997) (referencing Picard, 404 U.S. at 278; Schneider v. Delo, 85 F.3d 335, 339 (8th Cir. 1996)).

         Picardi's assertion that his proposed jury instruction number nine fairly presented the issue now before the court on a void-for-vagueness constitutional claim is misplaced. The proposed instruction read in its entirety as follows:

         DEFINITION OF UNSETTLED LAW

Where the tax law is vague or highly debatable, a defendant lacks the requisite intent to violate it. Criminal prosecution for the violation of an unclear duty itself violates the clear constitutional duty of the government to warn citizens whether particular conduct is legal or illegal.
A defendant cannot be guilty of willfully evading and defeating income tax when the law surrounding the deductibility of certain expenses is unsettled and there is no direct authority pointing to a ready answer. The tax law is “unsettled” where individuals could plausibly reach directly opposing, reasonable and well-supported, conclusions regarding the law's interpretation.

See CR. Dockets 154 at p. 15. Picardi's presentation to the trial court during the settlement of instructions conference made no mention of a constitutional claim.

MR. VAN NORMAN: The only instruction that we would still ask the Court to consider is our proposed jury instruction 9, definition of unsettled law.
MR. VAN NORMAN: Your Honor, I think that part of what we have done this morning exemplifies that, and I think it helps the jury to understand that there is a huge deal of confusion and difficulty with common citizens dealing with the tax code, including CPAs and attorneys who hold themselves out as experts. That's the basis for our request.
THE COURT: I did look at this instruction; we studied it. It's not a pattern instruction, but it's drawn from case law. As long as it's drawn from cases that defense counsel cited, there's not in any of those cases that I could see an approved instruction. I understand the source and I ...

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