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JOSEPH P. RUSSONIELLO (CSBN 44332) United States Attorney BRIAN J. STRETCH (CSBN 163973) Chief, Criminal Division LAUREL BEELER (CSBN 187656) Assistant United States Attorney 450 Golden Gate Avenue, 11th Floor San Francisco, California 94102 Telephone: (415) 436-6765 Facsimile: (415) 436-7234 Email: laurel.beeler@usdoj.gov Attorneys for Plaintiff

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) v. ) ) CONNIE C. ARMSTRONG, JR., ) ) Defendant. ) ______________________________) No. CR 94 276 PJH UNITED STATES' OPPOSITION TO DEFENDANT ARMSTRONGS 28 U.S.C. 2255 MOTION

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TABLE OF CONTENTS TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

3 4 5 II. PROCEDURAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IV. ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 A. Armstrongs Section 2255 Motion May Be Untimely . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 B. Armstrong Procedurally Defaulted His Claim About Late Disclosure of Tapes . . . . . . . . 8 C. The Ninth Circuit Rejected Armstrongs Jury Instruction Claim On Direct Appeal . . . . . 9 D. Armstrong Does Not Establish An Impermissible Motive For His Prosecution . . . . . . . 10 IV. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 III. RELEVANT FACTS ...............................................................................................................2 A. The Trial Evidence...............................................................................................................2 B. Armstrongs Direct Appeal................................................................................................ 5 C. The Re-Sentencing and Second Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

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TABLE OF AUTHORITIES FEDERAL CASES

3 4 5 6 7 Clay v. United States, 537 U.S. 522, 527-08 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7 8 Coleman v. Thompson, 501 U.S. 722, 753 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9 9 Davis v. United States, 417 U.S. 333 (1974) ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 Kaufman v. United States, 394 U.S. 217, 223-28 & n.8 (1969) . . . . . . . . . . . . . . . . . . . . . . . . 2, 9 11 Massaro v. United States, 538 U.S. 500, 504 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 8 12 13 Mayle v. Felix, 545 U.S. 644, 654-55 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 14 Missouri v. Jenkins, 495 U.S. 33, 45 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 15 16 United States v. Armstrong, 517 U.S. 456, 464 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 17 18 19 20 United States v. Frady, 456 U.S. 152, 170 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9 21 22 23 24 25 26 27 28 United States v. Lupton, memorandum opinion, 2008 WL 4603336, *4*5 (E.D. Wis. Oct. 16, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 United States v. Redd, 759 F.2d 699, 700 (9th Cir. 1985) (per curiam) . . . . . . . . . . . . . . . . . . 2, 9 United States v. Scrivner, 189 F.3d 825, 827-28 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . 2, 9-10 Wayte v. United States, 470 U.S. 598, 607-08 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Withrow v. Williams, 507 U.S. 680, 720-21 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 United States v. Leonti, 326 F.3d 1111, 1119 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 United States v. Lopez, 474 F.3d 1208, 1211 (9th Cir.), cert. denied, 550 U.S. 928 (2007) . . . . 10 United States v. Armstrong (Armstrong I), No. 97-10392, memorandum opinion, 2000 WL 425007 (9th Cir. April 19, 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim United States v. Armstrong (Armstrong II), No. 00-10399, memorandum opinion, 2002 WL 554373 (9th Cir. April 8, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Shah v. United States, 878 F.2d 1156, 1161 (9th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Matus-Leva v. United States, 287 F.3d 758, 761 (9th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Bordenkircher v. Hayes, 434 U.S. 357, 364 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Bousley v. United States, 523 U.S. 614, 621-24 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 8-9 Carrington v. United States, 503 F.3d 888, 891 (9th Cir. 2007), dissent amended on denial of rehearing, 530 F.3d 1183 (9th Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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FEDERAL STATUTES 18 U.S.C. 1343 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 18 U.S.C. 2314 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 28 U.S.C. 2255 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FEDERAL RULES

6 Fed. R. Civ. P. 56(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LOCAL RULES Civil L. R. 7-5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Criminal L. R. 47-2(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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JOSEPH P. RUSSONIELLO (CSBN 44332) United States Attorney BRIAN J. STRETCH (CSBN 163973) Chief, Criminal Division LAUREL BEELER (CSBN 187656) Assistant United States Attorney 450 Golden Gate Avenue, 11th Floor San Francisco, California 94102 Telephone: (415) 436-6765 Facsimile: (415) 436-7234 Email: laurel.beeler@usdoj.gov Attorneys for Plaintiff

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Armstrong is on supervised release and therefore is in custody for purposes of his 28 U.S.C. 2255 motion. See Matus-Leva v. United States, 287 F.3d 758, 761 (9th Cir. 2002).
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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) v. ) ) CONNIE C. ARMSTRONG, JR., ) ) Defendant. ) ______________________________) No. CR 94 276 PJH UNITED STATES' OPPOSITION TO DEFENDANT ARMSTRONGS 28 U.S.C. 2255 MOTION

I. INTRODUCTION Connie C. Armstrong, Jr.1 asserts that his conviction and sentence should be vacated under 28 U.S.C. 2255 for the following reasons: (1) the government prosecuted him only because it was pressured to do so; (2) the government failed to timely disclose certain audio tapes of Armstrong; and (3) the trial court erred by denying a defense request for a theory-of-the-case jury instruction that certain assets were not held in trust for Armstrongs clients but instead were assets of Armstrongs company that were available for his investment and use. Armstrongs motion should be denied.

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First, Armstrongs 2255 motion may be untimely because it may not have been filed within one year of the date Armstrongs conviction became final. The United States has requested documents from the Ninth Circuit to clarify this issue. Second, assuming a timely-filed section 2255 motion, Armstrong cannot challenge the allegedly-late disclosure of tapes at trial because he did not raise the issue on direct appeal, and he cannot show cause and actual prejudice, or actual innocence, to overcome his procedural default. See Massaro v. United States, 538 U.S. 500, 504 (2003); Bousley v. United States, 523 U.S. 614, 621-24 (1998). As to his claim that the district court erred by denying his theory-ofthe case instruction, the Ninth Circuit rejected that claim on direct appeal. United States v. Armstrong (Armstrong I), No. 97-10392, memorandum opinion, 2000 WL 425007 (9th Cir. April 19, 2000). He establishes no grounds to re-litigate the claim. See Kaufman v. United States, 394 U.S. 217, 223-28 & n.8 (1969); United States v. Scrivner, 189 F.3d 825, 827-28 (9th Cir. 1999); United States v. Redd, 759 F.2d 699, 700 (9th Cir. 1985) (per curiam). Finally, Armstrong offers only conclusory allegations, not facts, about undue political influence, and thus he is not entitled to relief. See James v. Borg, 24 F.3d 20, 26 (9th Cir. 1994). II. PROCEDURAL BACKGROUND On June 27, 1994, a federal grand jury returned a twenty-one count indictment charging Armstrong and a co-defendant with causing travel in interstate commerce to execute a scheme to defraud (18 U.S.C. 2314) (Counts 1-3); wire fraud (18 U.S.C. 1343) (Counts 4-14, 19-21); and interstate transportation of securities traceable to fraudulently-obtained funds (18 U.S.C. 2314) (Counts 15-18). CR 1. The charges related to the operation of Hamilton Taft & Company, Inc. (Hamilton Taft), a payroll tax service company headquartered in San Francisco, California. A jury trial before the Honorable Charles A. Legge began on December 3, 1996, and ended on February 26, 1997, with guilty verdicts as to Armstrong on all counts. CR 239, 315. On August 29, 1997, the district court sentenced Armstrong to 108 months custody, three years of supervised release, restitution of $62,750,000, and a fine. CR 360, 361. Armstrong appealed his conviction. The Ninth Circuit affirmed all but counts 15-18

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(reversing on sufficiency grounds), and remanded for re-sentencing. See Armstrong I, 2000 WL 425007. On August 15, 2000, Judge Legge re-sentenced Armstrong to 108 months custody, three years of supervised release, and restitution of $1,000,000. CR 492, CR 494. Following a second appeal, the Ninth Circuit affirmed the judgment, which was entered on April 15, 2002. See United States v. Armstrong (Armstrong II), No. 00-10399, memorandum opinion, 2002 WL 554373 (9th Cir. April 8, 2002); Armstrong II, No. 00-10399, docket entry dated 04/15/02. On April 29, 2002, Armstrong asked for an extension of time to file a petition for rehearing and rehearing en banc, and he filed his petition on May 29, 2002. Armstrong II, No. 00-10399, docket entries dated 04/29/02 and 05/29/02. On January 31, 2003, the Ninth Circuit granted the motion for an extension of time, ordered the brief filed, and denied the petition for rehearing and rehearing en banc, and on February 10, 2003, it issued the mandate. Id., docket entries dated 01/31/03 and 02/10/03. Counsel for Armstrong sent a letter to the court in June 2007, and Armstrong sent a letter in July 2007. Id., docket entries dated 06/07/07 and 08/02/07. The docket entries suggest that the letters discussed the Ninth Circuits previous denial of the petition for rehearing. Id. On April 22, 2008, the Ninth Circuit construed the letters as a motion to recall the mandate, recalled the mandate, withdrew the January 31, 2003 order, issued a new order denying the petition for rehearing and rehearing en banc, and ordered the mandate to issue forthwith. Id., docket entry dated 04/22/09. On May 12, 2008, mail (presumably addressed to either defense counsel or Armstrong) was returned refused. Id., docket entry dated 05/21/08. Armstrong apparently filed his section 2255 motion on April 22, 2009, and an amended motion on May 11, 2009. CR 536, 541 (refers to April 22 motion), 549. The April 22 motion is not listed on the docket, possibly because Armstrong tried unsuccessfully to file it under seal CR 537. The government does not have a copy. Declaration of Laurel Beeler at 1-2. III. RELEVANT FACTS A. The Trial Evidence An overview of the trial evidence shows that Hamilton Taft a service company that assisted large companies by calculating, collecting, and paying their payroll taxes to federal, state, and local taxing entities had long been in existence when Armstrong acquired it in March 1989

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(Armstrong I Government Brief (hereafter, GB) 60).2 Until that time, Hamilton Taft had derived its income from investing client funds (employee and employer tax payments collected for payment to taxing authorities) during the time period from receipt of the funds until the checks to the taxing agencies cleared (GB 60). In March of 1991, some of Hamilton Tafts clients forced it into involuntary bankruptcy (GB 60). Afterward, a bankruptcy trustee determined that under Armstrongs stewardship, Hamilton Taft had collected $91 million from its clients to pay their taxes to various taxing agencies, but that despite those collections, Hamilton Taft had only $5.8 million on hand (GB 60). The trustee also discovered that over a two-year period, Hamilton Taft had prepared tax payment checks but held them back, and thus was not making timely payments to taxing authorities (GB 60-61). Because this created a perpetual and increasing shortfall, Hamilton Taft held back more checks each quarter to make the past tax payments and to pay penalties that accrued when taxes due were not paid on time (GB 61). Basically, each quarter, Hamilton Taft used incoming funds from clients to cover delinquent taxes and penalties for other clients (GB 61). The trustees accountant determined that by the last quarter of 1990, Hamilton Taft had held back $57 million in checks (GB 61). The accountant determined that during Armstrongs ownership of Hamilton Taft, the company was not profitable, and its shortfall continually increased because of operating losses, large penalties for late tax payments, and Armstrongs transfer of funds from Hamilton Taft to his own companies (where he used the funds to buy assets like real estate, oil wells, a multi-million dollar ranch, a helicopter, luxury cars, and a lease of an airplane) (GB 61). Specifically, the accountant determined that during Armstrongs ownership, Hamilton Taft (1) spent more than $14 million to cover the cost of its operations; (2) paid more than $8.5 million in penalties and interest to tax agencies for delinquent taxes and accrued (but did not pay) additional penalties of $8 to $9 million; (3) transferred more than $55.1
2

For its facts here, the government relies on its lengthy statement of facts from its brief in Armstrong I, which cites the record. (The government similarly relied on that brief in its recitation of facts in Armstrong II.) Because the governments copy of the Armstrong I brief is from the governments excerpt of records in Armstrong II, it has bates numbers on its lower right-hand corners. For ease of reference, the government uses those bates numbers here. The government will lodge copies of both parties briefs from both appeals with the Court.
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million to Armstrongs companies; and (4) spent more than $16.5 million on Armstrong personally (including $9.2 million for his ranch, $965,000 in political and charitable contributions, $735,000 for a criminal defense retainer, $1.7 million for a helicopter, $352,000 for cars, $217,000 for a Fourth of July party, and $1.4 million in other personal expenditures including $98,392 for furs and Christmas presents) (GB 61). B. Armstrongs Direct Appeal On direct appeal, Armstrong challenged the district courts refusal to give his theory of the defense instruction that client funds collected by Hamilton Taft to pay client payroll taxes were not held in trust but instead were the property of the company. Armstrong I Appellants Opening Brief (hereafter, AOB) at 50-56. That meant, Armstrong argued, that Hamilton Taft (and Armstrong) could use the funds for any purpose and for any length of time as long as when the taxes were paid Hamilton Taft paid any penalties and interest. AOB 50-52. The instruction, Armstrong asserted, was supported by the Ninth Circuits opinion in In Re Hamilton Taft, 53 F.3d 285 (9th Cir. 1995), an opinion that the court ultimately vacated as moot. See In Re Hamilton Taft, 68 F.3d 337 (9th Cir. 1995). The Ninth Circuit rejected this claim, holding that the district court did not abuse its discretion in rejecting Armstrongs proposed theory-of-thedefense instruction because the good-faith instruction adequately covered Armstrongs theory. Armstrong I, 2000 WL 426007, at *1 & n.2 (specifically rejecting Armstrongs argument that In Re Hamilton Taft required the district court to use his proposed instruction). On direct appeal, Armstrong also challenged the sufficiency of the evidence of his fraudulent intent as to all 21 counts of the indictment, the district courts refusal to admit a hearsay declaration, and the district courts ex parte contacts with the jury. AOB at 24-40, 49-62. The Ninth Circuit rejected his claims. Armstrong I, 2000 WL 425007, *2-*4. As to the trial evidence about fraudulent intent, the court held that it showed the following: (1) Armstrong repeatedly was warned that his use of client funds was likely improper or illegal; (2) he directed . . . withhold[ing of] client checks, and actively sought to cover up the diversion and withholding of client funds; (3) Armstrong and Hamilton Taft failed to fulfill client expectations and specific contractual obligations to pay taxes on time; (4) Armstrong made misrepresentations to particular clients regarding the use of their funds; (5) in addition to using client funds for risky, long-term investments, Armstrong also made extensive personal use of client funds.

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Id. at *2. This evidence established that Armstrong had the intent and developed a scheme to defraud. Id. The Court then affirmed 17 of the 21 counts, reversed Counts 15-18 on sufficiency grounds, and remanded the case for re-sentencing. C. The Re-Sentencing and Second Appeal Following remand, Judge Legge re-sentenced Armstrong to 108 months prison, three years of supervised release, and restitution of $1,000,000. CR 492, CR 494. Following a second appeal, the Ninth Circuit affirmed the judgment. See Armstrong II, 2002 WL 554373. IV. ARGUMENT Armstrong alleges that his conviction and sentence should be vacated for the following reasons: (1) the government prosecuted him only because it was pressured to do so; (2) the government failed to timely disclose certain audio tapes of Armstrong; and (3) the trial court erred by denying a defense request for a theory-of-the-case jury instruction that certain assets were not held in trust for Armstrongs clients but instead were assets of Armstrongs company that were available for his investment and use. The Court should dismiss the claims. Armstrongs motion may be untimely because it may not have been filed within one year of the date his conviction became final. Assuming a timelyfiled section 2255 motion, Armstrong cannot challenge the allegedly late disclosure of tapes because he did not raise the issue on direct appeal, and he cannot overcome his procedural default. He already challenged on direct appeal, and cannot re-litigate here, his claim that the district court erred by denying his proposed theory-of-the case instruction. Finally, Armstrongs conclusory allegations do not establish an impermissible motive for his prosecution. A. Armstrongs Section 2255 Motion May Be Untimely First, Armstrongs 2255 motion may be untimely because it may not have been filed within one year from the date Armstrongs conviction became final. Under 28 U.S.C. 2255, a section 2255 motion must be filed within one year from the date that a conviction is final. A conviction is final when the opportunity for direct review is exhausted. See Clay v. United States, 537 U.S. 522, 527-08 (2003). Here, following the second appeal in Armstrong II, Armstrong did not file a petition for certiorari. Therefore, his conviction

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was final 90 days after entry of the Ninth Circuits judgment in Armstrong II. See Clay, 537 U.S. at 527-08; Supreme Court Rule 13.1. A timely petition for rehearing operates to suspend the finality of a court of appeals judgment and therefore tolls the 90-day time period for filing a petition for certiorari. See Missouri v. Jenkins, 495 U.S. 33, 45 (1990); Supreme Court Rule 13.4. Put another way, the 90day period runs from the date of the denial of rehearing. See Supreme Court Rule 13.4. Here, the Ninth Circuit entered its judgment in Armstrong II on April 15, 2002, granted Armstrongs motion for an extension of time to file his petition for rehearing, and denied the petition on January 31, 2003. See Armstrong II, No. 00-10399, docket entries dated 04/15/02, 04/29/02, 05/29/02, 01/31/03. Thus, Armstrongs conviction was final 90 days after January 31, 2003. See Clay, 437 U.S. at 524-25 (this date, and not the issuance of the appellate court mandate, is the triggering date). Ordinarily, his section 2255 motion filed in 2009 would be untimely because it was filed more than one year after his conviction became final. On April 22, 2008, however, the Ninth Circuit construed certain defense letters as a motion to recall the mandate, recalled the mandate, withdrew the January 31, 2003 order, issued a new order denying the petition for rehearing and rehearing en banc, and ordered that the mandate issue forthwith. Id., docket entry dated 04/22/09. The Ninth Circuit has authority to recall its mandate in extraordinary circumstances in order to protect the integrity of its processes, but it should do so only in exceptional circumstances. See Carrington v. United States, 503 F.3d 888, 891 (9th Cir. 2007), dissent amended on denial of rehearing, 530 F.3d 1183 (9th Cir. 2008). After the United States obtains the letters,3 it will be able to evaluate whether the April 22, 2008, order issued five years after Armstrongs conviction otherwise became final affects the timeliness of Armstrongs section 2255 motion. A related procedural issue is whether the 90-day period for certiorari runs from the renewed denial of Armstrongs petition for rehearing on April 22, 2008. Ordinarily the 90 days runs from the denial of the petition for rehearing, see Supreme Court Rule 13.4, but it seems unusual that

The letters are not in the governments files. According to the Ninth Circuit, it will take three to five days to retrieve the documents from the Federal Records Center in San Bruno, California, and after that, the government will copy them. Declaration of Laurel Beeler at 1.
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the new order should restart the certiorari clock and extend the time period for filing a section 2255 motion five years after the Ninth Circuit denied the petition for rehearing. Again, the Ninth Circuit documents may illuminate the issue. The inquiry is relevant because Armstrong filed his section 2255 motion on April 22, 2009, one year after the denial of the petition for rehearing, but filed an amended motion more than a year later, on May 11, 2009. See CR 536 and 541 (orders discussing April 22 motion, which apparently was never filed), CR 549. If the 90-day certiorari grace period does not apply, then the claims in the May 11 motion are deemed filed within the one-year period only if they relate back to the April 22 motion under Federal Rule of Civil Procedure 15(c). See Mayle v. Felix, 545 U.S. 644, 654-55 (2005). B. Armstrong Procedurally Defaulted His Claim About Late Disclosure of Tapes Armstrong cannot challenge the allegedly late disclosure of tapes because he did not raise the issue on direct appeal, and he cannot overcome his procedural default. Generally, a defendant who does not raise a claim on direct appeal cannot raise it on collateral review unless he shows both cause excusing his procedural default and actual prejudice resulting from the claim of error. See Massaro, 538 U.S. at 504. The cause and prejudice standard requires Armstrong to show not only that some objective factor external to the defense impeded his efforts to raise the issue earlier, Coleman v. Thompson, 501 U.S. 722, 753 (1991), but also that the error he alleges worked to his actual and substantial disadvantage, infecting his entire trial with error. United States v. Frady, 456 U.S. 152, 170 (1982) (emphasis in the original). If Armstrong cannot show cause and prejudice, the Court can consider his claim only if he demonstrates actual innocence. See Bousley, 523 U.S. at 621-24. Here, Armstrong asserts that near the end of trial or in the middle of trial, the government disclosed 70 hours of audio recordings between Armstrong and one of his personal assistants that showed Mr. Armstrongs lack of intent to defraud. Amended 2255 Motion at 15 n.4 & 20. Armstrong asserts without citation to the relevant transcript that the district court denied his motion for a continuance and that only after trial could counsel analyze the tapes. Id.; see also CR 353, 354, 360 (motion for new trial heard on August 29, 1997). Although Armstrong challenged the timing of the disclosure of the tapes during trial, he did

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not raise the issue on appeal. He has not overcome this procedural default by showing that an objective factor external to the defense impeded his ability to raise the issue on direct appeal, and his conclusory allegations about the relevance of the tapes do not show an actual and substantial disadvantage that infected his entire trial with error. See Coleman, 501 U.S. at 753; Frady, 456 U.S. at 170; James, 24 F.3d at 26 (conclusory allegations, unsupported by specific facts, do not warrant habeas relief). Also, Armstrong cannot establish actual innocence. See Bousley, 523 U.S. at 622. As the Ninth Circuit held in Armstrong I, the evidence established that Armstrong had the intent and developed a scheme to defraud. 2000 WL 425007, *2-*4 (summarizing Armstrongs diversion of funds, failure to pay client taxes, misrepresentations to clients, risky investments, and extensive personal use of client funds). C. The Ninth Circuit Rejected Armstrongs Jury Instruction Claim On Direct Appeal Armstrong already challenged on direct appeal and the Court should not reconsider here his claim that the district court erred by denying his proposed theory-of-the case instruction. Armstrongs claim that client funds collected by Hamilton Taft to pay client payroll taxes were not held in trust but instead were available to Hamilton Taft and Armstrong to invest so long as they ultimately paid the taxes and any interest and penalties is the same claim that Armstrong raised before the Ninth Circuit on direct appeal. AOB at 50-56. The Ninth Circuit rejected this claim, holding that the good-faith instruction adequately covered Armstrongs theory of the defense. See Armstrong I, 2000 WL 426007, at *1 & n.2 Because Armstrong raised this claim on direct appeal, and the Court of Appeals rejected it, it cannot be the basis of a collateral attack on his conviction absent countervailing equitable considerations such as actual innocence or cause and actual prejudice. Withrow v. Williams, 507 U.S. 680, 720-21 (1993) (Scalia, J., concurring) (collecting cases); see Kaufman, 394 U.S. at 223-28 & n.8; Redd, 759 F.2d at 700; supra p. 8 (Armstrong has not shown either cause and prejudice or actual innocence). This approach to federal prisoner collateral litigation is an extension of the law-of-the-case doctrine, which can be overridden when exceptional circumstances exist. See Scrivner, 189 F.3d at 827. Exceptional circumstances justifying section 2255 relief generally involve an intervening change in the governing substantive law,

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usually a new judicial decision narrowly construing the statute of conviction. See Davis v. United States, 417 U.S. 333 (1974); Scrivner, 189 F.3d at 827-828. Armstrong has not articulated exceptional circumstances here, and the Court should not address his claim. D. Armstrong Does Not Establish An Impermissible Motive For His Prosecution Armstrong alleges that the government determined that he did not violate[] any federal laws and only prosecuted him . . . due to intense pressure from Howard Baker, Nancy Pelosi, Barbara Boxer, the director of the FBI, [deputy FBI director] L.A. Potts, and a few [of Harris Tafts] clients such as Federal Express. Motion at 10. Armstrongs conclusory allegations do not establish a claim. The prosecutor has broad discretion to enforce the nations criminal laws, especially pretrial, in part because of the separation of powers doctrine and in part because prosecutorial decisions are particularly ill-suited to judicial review. See United States v. Armstrong, 517 U.S. 456, 464 (1996); Wayte v. United States, 470 U.S. 598, 607-08 (1985). So long as the prosecutor has probable cause that a defendant committed a crime, the decision whether or not to prosecute, and what charge to file or bring before a grand jury, generally rests entirely in his discretion. Bordenkircher v. Hayes, 434 U.S. 357, 364 (1978). Prosecutorial discretion is not unlimited: decisions cannot be based on unconstitutional standards (selective prosecution), made in bad faith, or made in retaliation for the defendants exercise of a protected statutory or constitutional right (vindictive prosecution). Wayte, 470 U.S. at 607-10 (selective prosecution); United States v. Leonti, 326 F.3d 1111, 1119 (9th Cir. 2003) (prosecutors refusal to file substantial assistance motion may not be made in bad faith); United States v. Lopez, 474 F.3d 1208, 1211 (9th Cir.) (vindictive prosecution), cert. denied, 550 U.S. 928 (2007).4 In support of his claim, Armstrong cites the following: 1. A February 8, 1991, letter from the FBI to the United States Attorneys Office (USAO) (a) asking the USAO to review whether federal law was violated by Armstrong as CEO of Hamilton Taft, (b) summarizing the investigation through 1988, (c) mentioning the USAOs 1988 determination that there was insufficient evidence at that time to charge a

Armstrong does not cite any cases addressing whether outside influence is an impermissible motive for prosecution. The government found one unpublished opinion discussing whether a prosecutor may bring charges based on partisan political objectives. See United States v. Lupton, memorandum opinion, 2008 WL 4603336, *4 *5 (E.D. Wis. Oct. 16, 2008).
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case, and (d) summarizing new evidence. Motion at 12-13 & Exh. 4. 2. A September 23, 1988, letter from the FBI confirming assistant United States attorney Michael Yamaguchis decision that there was insufficient evidence to support a violation at this time and he would therefore decline prosecution . . . [but] if further information could be obtained regarding the allegations presented, he would reconsider his opinion. Motion at 12-13 & Exh. 8 (emphasis added). 3. A March 8, 1991, FBI memorandum summarizing the investigation since February 13, 1991 and, among other things, referencing (a) calls from the Department of Justice in Washington, D.C., (b) calls from the Wall Street Journal, and (c) the agents on-going efforts to corroborate the cooperating witnesss information while remaining covert in this phase of the investigation. Motion at 13-14 & Exh. 12. 4. Federal Expresss March 1991 lawsuit against Hamilton Taft. Motion at 14 & Exh. 14. 5. A March 15, 1991, Wall Street Journal article about Armstrongs Ponzi scheme. Motion at 15 & Exh. 16. 6. An April 3, 1991, letter from the FBI to Mr. Baker, (former Senator Howard Baker, Chief of Staff for President Reagan, and a member of the Federal Express board of directors . . . [ccd] to the representatives of the offices of Nancy Pelosi and Barbara Boxer) advising Baker that the FBI was investigating Armstrong for embezzling over $100 million in a Ponzi scheme. Motion at 16 & Exh. 20. Armstrongs allegations do not establish any impermissible motive for his prosecution. First, although he signed the section 2255 motion under penalty of perjury under his counsels signature, see Motion at 29, that is not the declaration contemplated by this Courts local rules and Federal Rule of Civil Procedure 56(e). See Criminal L. R. 47-2(b) (Motions presenting issues of fact shall be supported by affidavits or declarations which shall comply with the requirements of Civil L. R. 7-5); Civil L. R. 7-5 (An affidavit or declaration . . . shall conform as much as possible to the requirements of FRCivP 56(e)); Fed. R. Civ. P. 56(e) (affidavits shall be made on personal knowledge). Armstrong does not establish where documents came from, and many of his conclusory assertions lack foundation. Second, he mischaracterizes the governments initial declination of the case as a conclusion that no crime occurred. See, e.g., Motion at 12 (citing Exhibit 8 and 1988 declination). But Exhibit 8 establishes only that in 1988, the government declined prosecution at this time but would reconsider its decision if more information were obtained. Armstrongs additional exhibits demonstrate that more investigation led to more evidence and his prosecution. Third, although Armstrong casts his 2255 motion as an attack on the governments motives,

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mainly he revisits issues raised on direct appeal about the sufficiency of the evidence establishing his fraudulent intent. Compare Motion with Armstrong I, 2000 WL 425007, *1-*4. Fourth, the FBI letter to Mr. Baker (apparently then on the board of victim Federal Express) merely advises him about the existence of an investigation into a scheme and does not establish any political pressure on the government to prosecute. Armstrong offers no other facts supporting his conclusory allegation of intense political pressure from Howard Baker, politicians, and victims. Similarly, inquiries from Main Justice, the Wall Street Journal article, and Federal Expresss lawsuit do not establish inappropriate outside influence. The Court should dismiss Armstrongs claims summarily. See James, 24 F.3d at 26 (conclusory allegations, unsupported by specific facts, do not warrant habeas relief); Shah v. United States, 878 F.2d 1156, 1161 (9th Cir. 1989) (vague or conclusory allegations do not warrant an evidentiary hearing and allow summary dismissal of claims). V. CONCLUSION Depending on what Ninth Circuit documents show about the recall of the mandate in 2008, Armstrongs 2255 motion may be untimely because it was not filed within one year of the date his conviction became final in 2003. Assuming a timely-filed section 2255 motion, the Court should dismiss Armstrongs claims as follows: (a) Armstrong procedurally defaulted on his claim about disclosure of tapes; (b) the Ninth Circuit rejected on direct appeal his claim that the district court erred by denying his theory-of-the case instruction; and (c) Armstrongs conclusory allegations do not establish any impermissible motive for his prosecution. The United States also requests a copy of Armstrongs April 22 motion from the Court. DATED: July 23, 2009 Respectfully submitted, JOSEPH P. RUSSONIELLO United States Attorney /s Laurel Beeler LAUREL BEELER Assistant United States Attorney

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