Morris, Edward v. United States ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 98-3306
EDWARD L. MORRIS,
Petitioner-Appellant,
v.
UNITED STATES OF AMERICA,
Respondent-Appellee.
Appeal from the United States District Court
for the Southern District of Illinois.
No. 97 C 331--William L. Beatty, Judge.
ARGUED FEBRUARY 28, 2001--Decided September 4, 2001
Before HARLINGTON WOOD, JR., KANNE, and
ROVNER, Circuit Judges.
ROVNER, Circuit Judge. Edward L. Morris
is a former officer of Germania Bank who
was convicted of two counts of mail
fraud, 18 U.S.C. sec. 1341, and one count
of wire fraud, 18 U.S.C. sec. 1343, in
connection with Germania’s $10 million
offering of subordinated capital notes
("Schnotes"). We affirmed his conviction
on direct appeal in United States v.
Morris, 80 F.3d 1151 (7th Cir. 1996), and
he now brings a sec. 2255 petition
alleging ineffective assistance of trial
counsel. We will not repeat the facts
which are set out in great detail in our
prior opinion, but instead turn directly
to the claim.
In order to establish ineffective
assistance of counsel, Morris must
demonstrate that his counsel’s
performance was deficient, and that he
was prejudiced as a result. Strickland v.
Washington, 466 U.S. 668, 687 (1984);
Wright v. Gramley, 125 F.3d 1038, 1041
(7th Cir. 1997). In order to demonstrate
prejudice, the defendant must show that
there is "a reasonable probability that,
but for counsel’s unprofessional errors,
the result of the proceeding would have
been different." Strickland, 466 U.S. at
694; Wright, 125 F.3d at 1041. A
reasonable probability is one sufficient
to undermine confidence in the outcome.
Id. at 1041-42.
The crux of the case at trial was that
the bank had conducted an in-depth
quarterly review of the bank’s loan port
folio in August and September 1987 (the
"September Analysis" or "SA"), in which
management (including Morris) recommended
an additional $9.3 million in loan loss
reserves. The trial evidence showed that
Morris was aware of and agreed with that
SA, that Morris nevertheless failed to
disclose that information in selling the
Schnotes in 1987 and 1988, and that the
offering circular for those Schnotes
represented that the current reserves
were "adequate." In February 1988,
pursuant to recommendations by Peat,
Marwick based on a year-end audit,
Germania took an additional $9.4 million
in reserves, and eventually its financial
condition deteriorated to the point that
it was placed in conservatorship by the
Resolution Trust Corporation and the
Schnotes became worthless. Morris argues
that his trial counsel was ineffective in
failing to reasonably investigate his
case, specifically in his counsel’s
failure to recognize the importance of
two documents provided by the government
in discovery. The two documents at issue
are an internal Federal Home Loan Bank
Board memorandum dated October 19, 1987
("Internal Memorandum"), and a September
30, 1988 letter written by Jimmie New
(the "New letter"). We begin with the New
letter.
As our prior opinion made clear, Jimmie
New was a critical government witness in
this case, who himself had pled guilty to
fraud. He was one of the principle
authors of the SA, and one of three
persons in management (Morris and co-
defendant Gardner were the other two) who
submitted the SA to the Executive
Committee of Germania’s Board of
Directors and recommended increasing the
reserves in September 1987. Morris
contends that the New letter would have
provided "powerful ammunition to impeach
the critical component of New’s
testimony--his contention that it was
necessary to immediately recognize an
additional nine million dollars of loan
loss reserves as set forth in his SA."
The letter in pertinent part provided:
The majority of the reserves which were
established in the fourth quarter of 1987
related to the provision for losses on
Real Estate Owned of $1.5 million which
were deemed necessary by management of
the Bank due to some adverse developments
on portions of its Real Estate Owned and
a substantial increase in Real Estate
Owned during the fourth quarter of 1987
as well as recording Provision for Losses
on Industrial Revenue Bond
Collateralization Agreements of $3.4
million in connection with the default by
borrowers under three of these
agreements.
New Letter at 6. Morris had testified
that events in the fourth quarter
necessitated the additional reserves in
February 1988, including the stock market
crash, and four properties, Westchester,
Oak Brook, Silver Springs, and the Ramada
Inn at Fairview Heights, that became
scheduled items. According to Morris, the
Industrial Revenue Bond Collateralization
Agreements described in New’s letter
referred precisely to those properties.
Morris contends that the reserves taken
in February 1988, although roughly
equivalent in amount with the
recommendations of the SA, were based on
the substantially different asset
problems which arose in the fourth
quarter. He asserts that the New letter
recognizes that, and thus contradicts
New’s trial testimony to the contrary.
Because New’s testimony was critical to
the conviction, Morris argues that his
attorney was ineffective in failing to
realize the significance of the New
letter and use it in cross-examination.
We need not consider whether there is
deficient performance in the failure to
use the New letter in this case, because
there is no prejudice. See United States
v. Depoister, 116 F.3d 292, 295 (7th Cir.
1997) ("[b]ecause the defendant must
establish both of these prongs, we can
initially address, in reviewing such an
ineffectiveness claim, either prong of
this test."). Our review of the trial
transcript reveals that the New letter
was indeed cumulative of testimony
elicited on cross-examination by counsel
for Morris’ co-defendant Gardner. New was
questioned regarding those same assets,
and acknowledged the developments that
occurred in the fourth quarter. For
instance, New acknowledged that West
Chester was moved from Deed Foreclosure
status into Real Estate Owned status in
the fourth quarter, but he further stated
that although it happened in the fourth
quarter, they were aware of it in the
second and third quarter. Under
questioning, New admitted that the stock
market crash of October 1987 was a very
significant event in the fourth quarter.
New also agreed that he did not
anticipate the way that Peat, Marwick
would treat the industrial revenue bond
properties, but asserted that the
difference was not $3.3 million, but was
approximately a million or a million and
a half because the SA recommended some of
that amount as basket reserves. When
confronted with his prior testimony in
which he stated that the industrial
revenue bond properties of West Chester,
Silver Springs, and Oak Brook, resulted
in three and a half million of reserves
that he had not planned on in August or
September, he said that was a true
statement. That extensive questioning
regarding the developments of the fourth
quarter renders the New letter
cumulative. New effectively acknowledged
the same facts presented in the New
letter, and provided an explanation that
the jury could choose to credit or not.
Because New testified consistently with
the statements in the New letter and it
was merely cumulative of other testimony
elicited on cross-examination, New was
not prejudiced by his attorney’s failure
to discover or utilize the letter at
trial. See Drake v. Clark, 14 F.3d 351,
356 (7th Cir. 1994) (finding no prejudice
where omitted testimony was cumulative).
The second document identified as
critical by Morris is an October 1987
internal FHLBB memorandum considering and
approving Germania’s application to issue
subordinated debt to Laclede Gas around
the time of the sale of Schnotes. Morris
specifically points to a portion of that
memorandum entitled "Consolidated Cash
Flow Forecast Utilizing the $17.5 Million
Subordinated Debenture." That forecast
indicates that Germania had budgeted an
additional eleven million dollars in loan
loss reserves for the five-year period
from 1987 through 1991. Morris argues
that notwithstanding that predicted need
for reserves, the FHLBB approved the sale
of subordinated debt to Laclede Gas.
That memorandum does not help Morris,
and in fact might have worsened his case.
The memorandum effectively corroborates
New’s contention that Morris was aware at
the time the offering circular was issued
of the need for a substantial increase in
the loan loss reserves. It is
furtherevidence that the statement in the
offering circular characterizing the
current reserves as "adequate" was
deceptive at best. Morris appears to
argue that the memorandum establishes
that they did not attempt to hide the SA
from others, and that they supplied the
relevant information to the regulators.
It does nothing, however, to counter the
testimony at trial that the information
was not provided in the offering circular
or in other material presented to
potential Schnote investors, or in the
information provided to Laclede Gas.
Therefore, the failure of Morris’ counsel
to discover and use the memorandum did
not prejudice Morris.
Accordingly, the decision of the
district court is AFFIRMED.