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United States v. Krug

United States District Court, W.D. Arkansas, Harrison Division

November 28, 2017

UNITED STATES OF AMERICA PLAINTIFF/RESPONDENT
v.
NICHOLAS KRUG DEFENDANT/PETITIONER

          MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

          HONORABLE MARK E. FORD UNITED STATES MAGISTRATE JUDGE

         Before the Court is the Petitioner's Motion Under 28 U.S.C. § 2255 to Vacate, Set Aside, or Correct a Sentence by a Person in Federal Custody filed April 28, 2017. (ECF No. 131). The United States filed its response on May 31, 2017. (ECF No. 134). Petitioner filed a reply on June 30, 2017. (ECF No. 137). The matter is ready for Report and Recommendation.

         I. Background

         On October 30, 2013, Defendant/Petitioner, Nicholas Krug (“Krug”), was named in an Indictment charging him with knowingly and willfully devising a scheme to defraud persons by means of materially false and fraudulent pretenses, representations, and promises, and with one count of wire fraud, all in violation of 18 U.S.C. § 1343. (ECF No. 1). A Summons was issued directing Krug to appear on November 12, 2013, and Krug appeared before the Hon. James R. Marschewski, U.S. Magistrate Judge, for arraignment on that date at which time Krug entered a not guilty plea to the Indictment. (ECF No. 16). Phillip A. Moon (“Moon”), a Criminal Justice Act panel attorney, was appointed to represent Krug. (ECF No's. 16, 23). Krug was released on bond. (ECF No's. 16, 19).

         A Superseding Indictment was filed on December 11, 2013, charging Krug with knowingly and willfully devising a scheme to defraud persons by means of materially false and fraudulent pretenses, representations, and promises, and with one count of conspiracy to commit wire fraud, all in violation of 18 U.S.C. § 1349. (ECF No. 27). Krug was arraigned on the Superseding Indictment on December 18, 2013, and Krug entered a plea of not guilty to the Supreseding Indictment. (ECF No. 34). The Government responded to Moon's request for discovery on December 18, 2013. (ECF No. 35).

         Krug and his Co-Defendant, Charles Edward Elliott (“Elliott”), jointly filed a motion to change venue on March 10, 2014. (ECF No. 41). That motion was denied on March 17, 2014. (ECF No. 43). A second joint motion for change of venue was filed on September 18, 2014. (ECF No. 58). It was denied on September 25, 2014. (ECF No. 62).

         On April 10, 2014, Krug sent the Court a letter in which he expressed a desire to represent himself. (ECF No. 123, p. 3). The Hon. P. K. Holmes, III, Chief U.S. District Judge, scheduled a hearing on April 14, 2014 to consider Krug's continued representation by appointed counsel. (ECF No. 44). At the hearing, Krug engaged in conduct commonly associated with “sovereign citizens, ” for example, when asked to come forward into the well of the Court, Krug responded, “Sir, are you inviting me aboard?” (ECF No. 123, p. 3). When ordered to come forward, Krug stated: “Sir, I am a live, living human being. I'm here as a third-party intervenor for the court for the entity of Nicholas Krug, if that's who you are referring to.” (ECF No. 123, pp. 3-4). The Court then asked questions to make sure Krug understood the consequences of representing himself. When asked his full name, Krug asked, “[a]re you speaking to Nicholas Krug, the live, living human being or are you speaking to the corporation that's listed on the documents?” (ECF No. 123, p. 7). He then stated, “I am the live, living human being, and I will answer that my name is ... Nicholas Joseph Krug.” (ECF No. 123, p. 8). The Court cautioned Krug that there are consequences of self-representation, that one must follow the rules of the Court, and that the right of self-representation can be forfeited. (ECF No. 123, pp. 9-10). When asked if he understood that, Krug responded: “Sir, again, I'm here as a third-party intervenor for that corporate entity that you have that you're trying to get me to agree that I am. I am the owner of that name. I am not the entity that you're referring to.” (ECF No. 123, p. 10). Krug maintained this position when asked if he wished to represent himself, prompting Judge Holmes to rule: “I tell you what, Mr. Krug, you are engaging in what's called - - the Court construes as obstructionist behavior, therefore, you have forfeited your right to represent yourself in this proceeding, and so you're going to be represented by Mr. Moon in this proceeding. So your request to proceed pro se is going to be denied and you're going to be represented by Mr. Moon in the proceeding.” (ECF No. 123, pp. 11-12).

         The Court also addressed the Government's motion to compel production of documents (ECF No. 46) at the hearing on April 14, 2014, stating: “. . . the United States learned that the Defendant Nicholas Krug has possession of documents related to the case. Through no fault of the defense attorney, the defendants refused to produce the documents that they intend to use at trial. . . . so I am going to grant the government's motion to compel the production of documents and order that [Defendants] produce the documents that they intend to use in the defense of their case at the trial that the Court intends to conduct.” (ECF No. 123, p. 13).

         On September 26, 2014, just ten days before the date scheduled for jury trial, Krug filed a motion to proceed pro se with stand-by counsel. (ECF No. 63). Referring to Judge Holmes' April 14, 2014 ruling denying Krug leave to proceed pro se, the Hon. Timothy L. Brooks[1], U.S. District Judge, commented that “the ensuing months have only confirmed the wisdom of Judge Holmes' decision as Defendant has continued to mail irrelevant, nonsensical documents to the Court . . .” (ECF No. 64, p. 2). Finding that Krug was continuing to engage in obstructionist behavior, the Court again denied leave for Krug to represent himself. (ECF No. 64).

         Jury trial was held on October 6-7, 2014. The Government presented testimony from the following witnesses at trial: Theodore “Ted” Holder, a senior staff attorney at the Arkansas Securities Department, who investigated Krug's activities and referred the matter to the Federal Bureau of Investigation (“FBI”) for further investigation (ECF No. 117, pp. 125-54); Ruthann Currence, the victim of Krug's scheme to defraud (ECF No. 117, pp. 156-259; ECF No. 118, pp. 9-62); Robert Cessario, an FBI Special Agent, who investigated the case (ECF No. 118, pp. 63-85); Sally Ballou, a regional service manager for Wells Fargo Bank (ECF No. 118, pp. 86-93); Terry Hendrix, a vice-president, security specialist, and records custodian for Arvest Bank (ECF No. 118, pp. 94-98); Edward Fillmore, a market manager and records custodian for Bank of America in the State of Arkansas (ECF No. 118, pp. 99-107); and, Steven Williams, a forensic accountant with the FBI (ECF No. 118, pp. 108-135).

         The Government introduced several exhibits at trial, including correspondence from Sovereign International[2], the Joint Venture Agreement between Sovereign International and Currence, bank routing instructions, CD's of recorded phone calls, e-mails, checks and other bank records. (ECF No. 70).

         After the Government rested, Krug's counsel moved for a judgment of acquittal, which motion was denied by the Court. (ECF No. 118, pp. 137-38). The defense then rested without calling any witnesses. (ECF No. 118, p. 140). On October 7, 2014, the jury returned its verdict finding Krug guilty of conspiracy to commit wire fraud as charged in the Superseding Indictment. (ECF No's. 75, 77).

         An initial Presentence Investigation Report (“PSR”) was prepared by the United States Probation Office on December 4, 2014. (ECF No. 80). On December 22, 2014, the Government advised that it had no objections to the initial PSR. (ECF No. 82). On December 22, 2014, Krug advised that he had eight objections to the initial PSR. (ECF No. 86-1). Of those objections that affected the Sentencing Guidelines calculation, Krug objected to: the four-level enhancement pursuant to U.S.S.G. § 2B1.1(b)(19)(A) for representing himself to be an “investment advisor”; the two-level enhancement pursuant to U.S.S.G. § 2B1.1(b)(10)(C) for use of “sophisticated means” in the commission of the offense; and, the denial of a reduction for acceptance of responsibility. (Id.). Finding that the enhancements and denial of acceptance of responsibility were correct, no changes to the PSR were made by the Probation Officer in response to Krug's objections. (Id.).

         On January 7, 2015, a final PSR was submitted to the Court.[3] (ECF No. 86). The final PSR reported that Krug's conduct called for a base offense level of seven. (ECF No. 92, ¶ 41). Finding that the loss was more than $400, 000 but less than $1, 000, 000, the offense level was increased by 14 levels. (ECF No. 92, ¶ 42). A two-level increase was assessed because the offense involved sophisticated means. (ECF No. 92, ¶ 43). Finally, a four-level increase was assessed because the offense involved a violation of securities law and Krug represented himself to be an investment advisor. (ECF No. 92, ¶ 44). Due to these enhancements, Krug's adjusted offense level was 27. (ECF No. 92, ¶ 48). No reduction for acceptance of responsibility was made, so Krug's total offense level was 27. (ECF No. 92, ¶¶ 49-50).

         Krug's lack of criminal history resulted in a criminal history score of zero, placing him in criminal history Category I. (ECF No. 92, ¶¶ 53-56). The statutory maximum term of imprisonment for Krug's offense is 20 years. (ECF No. 92, ¶ 92). Based upon a total offense level of 27 and criminal history Category I, Krug's advisory Guidelines range was determined to be 70 to 87 months imprisonment. (Id.).

         Krug appeared for sentencing on January 29, 2015. (ECF No. 96). Upon inquiry by the Court, Krug stated, “I don't understand how this Court can move forward when I have filed documents challenging jurisdiction, ” and he expressed not understanding the purpose of the sentencing proceedings.[4] The Court then informed Krug of the nature of the proceeding, and Krug was given an opportunity to confer further with his counsel concerning the final PSR. (ECF No. 119, pp. 2, 6). The Court summarized Krug's objections to the PSR (ECF No. 119, pp. 11-12), and argument was presented by counsel. The Court sustained Krug's PSR objections to the enhancements for use of sophisticated means and commission of the offense by an investment advisor (ECF No. 119, p. 14), but Krug's objection to not receiving a reduction for acceptance of responsibility was overruled (ECF No. 119, pp. 19-22). These rulings resulted in a reduction of six levels (ECF No. 119, p. 14), placing Krug at a total offense level of 21 (ECF No. 119, p. 23). The Court determined Krug's advisory Guidelines range was 37-46 months imprisonment. (ECF No. 119, p. 24).

         During his allocution, Krug stated “[w]e did invest those funds with three different entities, and those three different entities stole all this money, ” that “I had never had any intentions of defrauding anybody out of anything, ” that “I'm not a [thief] like this Court has made out to be, ” and that: “I did not commit fraud. We did not defraud the Currences out of their money. Other people took their money.” (ECF No. 119, pp. 36-39). Judge Brooks noted that a jury of 12 people found Krug guilty, and that “you've not done yourself any favors by standing up here and telling me that you didn't do anything wrong ...” (ECF No. 119, pp. 39-40). Finding that a sentence in the middle of the Guidelines was appropriate, the Court sentenced Krug to 42 months imprisonment, to be followed by three years supervised release, no fine, restitution in the amount of $539, 000[5], and imposition of a $100.00 special assessment. (ECF No. 96, p. 1; ECF No. 119, pp. 43-47). Krug was allowed to remain on bond and self-surrender no later than 1:00 p.m. on Friday, February 20, 2015. (ECF No. 96, p. 2; ECF No. 119, p. 53). Judgment was entered by the Court on February 2, 2015. (ECF No. 102).

         Krug timely filed an appeal to the Eighth Circuit Court of Appeals on February 12, 2015. (ECF No. 107). An arrest warrant was issued when Krug failed to surrender to the Federal Bureau of Prisons as ordered (ECF No. 112), and Krug was taken into custody on February 21, 2015 (ECF No. 114).

         On appeal, Krug argued there was insufficient evidence for the jury to conclude that he intentionally participated in a conspiracy to commit wire fraud, and that the District Court erred in denying his motion to proceed pro se and represent himself at trial. (ECF No. 125-1, p. 2). The Eighth Circuit Court of Appeals affirmed Krug's conviction and sentence in an Opinion filed on May 4, 2016. (ECF No. 125-1). A Mandate was issued on May 31, 2016. (ECF No. 125).

         On April 28, 2017, Krug filed his pro se Motion Under 28 U.S.C. § 2255 to Vacate, Set Aside, or Correct Sentence by a Person in Federal Custody. (ECF No. 131). The motion raises two grounds for relief: (1) “Defective appointment of counsel, ” and (2) “Access to Evidence.” (ECF No. 131, pp. 4-5). Attached to Krug's § 2255 motion is a “Motion for Remand to Consider Motion Under Fed Rule Crim. P. 33(B)(1)” in which he asserts newly discovered evidence and further argues his grounds for habeas relief. (ECF No. 133-1).

         The United States' response in opposition to the motion was filed on May 31, 2017. (ECF No. 134). On June 5, 2017, Krug filed a “Notice of Motion and Motion to Declare the Grand Jury Unconstitutional and for an Order Dismissing the Indictment and, in the Alternative, for an Order Granting a Post-Indictment Preliminary Hearing - Federal” (ECF No. 135), along with a Memorandum of Law in Support (ECF No. 136). Krug filed a reply to the Government's response on June 30, 2017. (ECF No. 137).

         II. Discussion

         “A prisoner in custody under sentence . . . claiming the right to be released upon the ground that the sentence was imposed in violation of the Constitution or laws of the United States, or that the court was without jurisdiction to impose such sentence, or that the sentence was in excess of the maximum authorized by law, or is otherwise subject to collateral attack, may move the court which imposed the sentence to vacate, set aside or correct the sentence.” 28 U.S.C. § 2255(a). “If the court finds that the judgment was rendered without jurisdiction, or that the sentence imposed was not authorized by law or otherwise open to collateral attack, or that there has been such a denial or infringement of the constitutional rights of the prisoner as to render the judgment vulnerable to collateral attack, the court shall vacate and set the judgment aside and shall discharge the prisoner or resentence him or grant a new trial or correct the sentence as may appear appropriate.” 28 U.S.C. § 2255(b). A thorough review of Krug's motion, and the files and records of this case, conclusively shows that Krug is not entitled to relief, and the undersigned recommends the denial and dismissal of Krug's § 2255 motion with prejudice without an evidentiary hearing.

         A. Krug's Rule 33 Motion

         The attachment to Krug's § 2255 motion (ECF No. 131-1) purports to be a motion for new trial made under Fed. R. Cr. P. 33 based on newly discovered evidence, but it also contains argument in support of his § 2255 motion. To the extent Krug's Rule 33 motion is based on “newly discovered evidence, ” it fails because the evidence referred to was clearly known and available to Krug prior to trial. Krug even states, “[a]ll documents, A through H, are all documents that Krug took to court-appointed Attorney Phillip Moon's office and Moon's secretary copied and gave them to Moon.” (ECF No. 131-1, p. 19). Krug faults Moon for not presenting these documents at trial, but that is a different issue and will be addressed below. Considering the documents in the context of Krug's Rule 33 motion for a new trial, it is undisputed that the documents were in Krug's possession prior to trial; he knew about them and took them to his attorney; so, these documents are clearly not “newly discovered evidence.” See United States v. Vazquez-Garcia, 340 F.3d 632, 641 (8th Cir. 2003) (motion for new trial on the ground of newly discovered evidence cannot be granted on the basis of evidence that the defendant was aware of before trial).

         Accordingly, Krug's Rule 33 motion, if considered separately from his § 2255 motion, should be denied.

         B. Issues Raised on Direct Appeal Cannot be Re-Litigated

         Krug raised two issues in his direct appeal to the Eighth Circuit Court of Appeals: (1) insufficiency of the evidence to support his conviction, and (2) denial of his request to represent himself. Those issues were decided adversely to Krug by the Eighth Circuit. United States v. Krug, 822 F.3d 994 (8th Cir. 2016). (ECF No. 125). Krug raises the same issues again in the attachment to his § 2255 motion when he claims there was no proof of a conspiratorial agreement and that he was erroneously denied the right to represent himself. (ECF No. 131-1, p. 22). Claims that were raised and decided adversely to a criminal defendant on direct appeal cannot be re-litigated on a motion to vacate pursuant to 28 U.S.C. § 2255. United States v. Lee, 715 F.3d 215, 224 (8th Cir. 2013) (internal citations omitted); see also Sun Bear v. United States, 644 F.3d 700, 702 (8th Cir. 2011) (citing Davis v. United States, 417 U.S. 333, 346-47 (1974)).

         These two claims are subject to summary dismissal in this proceeding.

         C. Non-Ineffective Assistance of Counsel Claims Are Procedurally Defaulted

         Krug raises two vaguely stated grounds for relief in his § 2255 motion: (1) “defective appointment of counsel, ” citing United States v. Cronic, 466 U.S. 648 (1984), and (2) “access to evidence, ” citing Arizona v. Youngblood, 488 U.S. 51 (1988). (ECF No. 131, pp. 4-5). The attachment to Krug's § 2255 motion also raises two other non-ineffective assistance of counsel claims: the Indictment may have been procured by fraud, and Krug was denied the right to be tried by a jury of his peers. (ECF No. 131-1, pp. 21, 22). Krug's non-ineffective assistance of counsel claims are procedurally barred because they were not raised in Krug's direct appeal.

         The United States Supreme Court has “long and consistently affirmed that a collateral challenge may not do service for an appeal.” United States v. Frady, 456 U.S. 152, 165 (1982) (internal citations omitted). Relief under § 2255 “is reserved for transgressions of constitutional rights and for a narrow range of injuries that could not have been raised on direct appeal and, if uncorrected, would result in a complete miscarriage of justice.” United States v. Apfel, 97 F.3d 1074, 1076 (8th Cir. 1996).

         The failure to raise an issue on direct appeal ordinarily constitutes a procedural default and precludes a defendant's ability to raise that issue for the first time in a § 2255 motion. Dejan v. United States, 208 F.3d 682, 685 (8th Cir. 2000) (citing Bousley v. United States, 523 U.S. 614, 621 (1998)). “Where a defendant has procedurally defaulted a claim by failing to raise it on direct review, the claim may be raised in habeas only if the defendant can first demonstrate either ‘cause' and actual ‘prejudice' or that he is ‘actually innocent.'” Bousley, 523 U.S. at 622. “For cause to exist, the external impediment, whether it be governmental interference or the reasonable unavailability of the factual basis for the claim, must have prevented petitioner from raising the claim.” McCleskey v. Zant, 499 U.S. 467, 497 (1991). Krug makes no such showing here. He does not demonstrate how the factual basis for his claims was not reasonably available to him in time to pursue relief on direct appeal.

         Krug argues “defective appointment of counsel, ” citing Cronic for the proposition that “there could be situations in which the appointment of counsel was so deficient as to be treated as an automatic violation of the Sixth Amendment.” (ECF No. 131-1, p. 4). Krug also vaguely alleges a violation of the prosecution's duty to disclose evidence, including exculpatory material, citing Youngblood. (ECF No. 131-1, p. 5). Krug fails, however, to allege any specific facts in support of these claims and, critical to the analysis of “cause” to excuse his procedural default, he does not explain how the facts underlying these claims were not available to him in time to raise the issues in this Court and on direct appeal. He states no facts that would place his case within the scope of Cronic's presumption of ineffectiveness, and he alleges no facts to support his claim that the Government failed to produce exculpatory evidence. Vague and conclusory allegations, unsupported by any specifics, are subject to summary dismissal. See Hollis v. United States, 796 F.2d 1043, 1046 (8th Cir. 1986); Smith v. United States, 677 F.2d 39, 41 (8th Cir. 1982).

         Krug had twice sought, and been denied, leave of the Court to represent himself, so he was well familiar with the Court's appointment of attorney Moon and the actions taken by Moon to prepare for and represent Krug during the two day jury trial. Having been present at trial, Krug also saw the evidence presented by the Government at trial. He had knowledge, therefore, of the factual basis for his claims of “defective appointment of counsel” and “access to evidence” in time to pursue relief on direct appeal.

         The facts underlying Krug's two other non-ineffective assistance of counsel claims - that the Indictment was procured through fraud and that Krug was denied a jury of his peers - were also available to Krug in time to appeal.

         First, Krug argues that his case is based on fraud if an affidavit of the victim, Ruthann Currence (“Mrs. Currence”), was used to obtain the indictment against him. This is so, according to Krug, because the affidavit was actually prepared by Theodore “Ted” Holder (“Mr. Holder”), a senior staff attorney with the Arkansas Securities Department, and “then signed by Ruthann Currence knowing that Ted made the affidavit out, in his words, to suit himself and inserted at least one sentence on his own that he admits that ‘it is not on the tape.'” (ECF No. 131-1, p. 21). This does not constitute “cause” to overcome the procedural default because the factual basis for the claim could have been developed at the time of trial. Both Mr. Holder and Mrs. Currence testified at trial, and the issue could have been addressed at that time and on appeal.

         Next, Krug claims he was denied the right to a jury of his peers. He states that the prosecutor and main witness are women, and that the jury was comprised of 11 women and one man. He further asserts that one of the women jurors, who became the foreperson of the jury, was “disqualified because she had lost money in an investment.” (ECF No. 131-1, p. 22). These facts, quite obviously, were known to Krug at the time of trial, and he could have raised his claim then and on appeal.

         Krug does not assert that some interference by government officials, or some external impediment, prevented him from raising any of these claims in the trial court or on direct appeal.

         The non-ineffective assistance of counsel claims Krug now asserts as grounds for § 2255 relief were simply not raised on direct appeal, and Krug is barred from raising those issues for the first time in this § 2255 proceeding.

         Since Krug has not shown adequate cause to overcome the procedural bar in his case, the Court need not consider the issue of actual prejudice. Ashker v. Class, 152 F.3d 863, 871 (8th Cir. ...


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