Failure to Raise Merger Defense Was Reasonable

Christian Allmendinger was convicted and sentenced for money laundering and other crimes stemming from a fraudulent investment scheme. While marketing life insurance policies to investors, Allmendinger misrepresented his company’s size, staff, and record of earnings for its investors, in addition to misappropriating millions of dollars for his personal benefit. The District Court for the Eastern District of Virginia sentenced Allmendinger to 540 months’ imprisonment. Allmendinger subsequently appealed, arguing that the sentence was both procedurally and substantively unreasonable. The Fourth Circuit rejected these arguments and affirmed both the conviction and the sentence.

Represented by new council, Allmendinger filed an action under 28 U.S.C. § 2255 in which he claimed that his appellate counsel’s failure to raise the “merger problem” as a defense to the charge of money laundering amounted to ineffective representation. A product of Fourth Circuit precedent, the “merger problem” stands for the proposition that where a defendant’s crime involves the use of money transactions to pay for the costs of illegal activity, the government cannot use those same money transactions to prosecute the defendant for money laundering. The District Court recognized the applicability of the merger problem, but nevertheless held that the failure to raise the issue did not amount to both deficient performance and prejudice, as is required to sustain an action under 28 U.S.C. § 2255.

The Fourth Circuit disagreed. Beginning with the issue of deficient performance, the court compared the strength of the issue not raised on appeal with the strength of the arguments that were raised. It found that the based on Fourth Circuit precedent, raising the merger problem had a “near-certain likelihood of success,” whereas appellate counsel’s arguments as to the procedural and substantive reasonableness of the sentence faced significant obstacles. Therefore, the Fourth Circuit found that appellant counsel’s omission of the merger problem was unreasonable under the circumstances. It rejected the government’s contention that the omission was strategic, noting that not every purported strategic reason will pass the test of reasonableness.

The Fourth Circuit reached the same conclusion with regards to the requirement of prejudice. It noted that the relevant inquiry was whether, had counsel raised the merger problem on direct appeal, the court was likely to have reversed the money laundering conviction and remanded the case for resentencing. The district court, therefore, erroneously required Allmendinger to show that a reversal of the money laundering conviction would have changed his sentence on remand. The Fourth Circuit found this standard to be too high, and proceeded to vacate and remand the judgment on the grounds that consideration of the merger problem was likely to have yielded a different result.