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Nazzal v. United States

United States District Court, E.D. Michigan, Southern Division

September 26, 2019



          Honorable David M. Lawson, Judge

         Following a jury trial, petitioner Hussein Nazzal and his co-defendant (and former attorney) Edward Schneider were convicted on multiple charges of bank fraud, bribery, and creating false records. The convictions were based on Nazzal’s orchestration of a “loan jumping” and mortgage fraud scheme over the course of several years involving numerous commercial loan transactions. He received a below-guidelines sentence of 110 months in prison and was ordered to repay more than $1.9 million in restitution. The convictions and sentence were affirmed on appeal. United States v. Nazzal, 607 Fed.App’x 451 (6th Cir. 2015). On September 9, 2016, Nazzal filed a motion to vacate his sentence under 28 U.S.C. § 2255, in which he argues that his trial counsel was ineffective by failing to investigate potential witnesses, coming unprepared for trial and presenting no defense, “coercing” him not to testify, and failing to file a brief in support of a mid-trial motion for judgment of acquittal on one charge. Because none of his claims justifies the relief that he seeks, the Court will deny the motion.

         I. Facts and Proceedings The Sixth Circuit included the following comprehensive recitation of the factual and procedural background of the case in its opinion affirming the petitioner’s convictions:

         Over several years, Hussein Nazzal and his attorney, Edward A. Schneider, conspired with others to defraud Detroit-area banks using fraudulent financial documents. They also bribed a bank officer to approve loans for unqualified third parties and took steps to conceal their crimes. The jury convicted on all counts, and each received a below-Guidelines sentence. . . .

         I. Factual & Procedural History Nazzal was a Dearborn, Michigan businessman who facilitated bank loans for others and also made his own “hard money loans” - i.e., high-interest loans to borrowers who could not otherwise obtain them. Over a six-year period beginning in 2003, Nazzal orchestrated three wide-ranging bank fraud schemes in the metropolitan Detroit area. To accomplish his frauds, Nazzal conspired with several people, including his attorney (co-defendant Edward Schneider), a title company vice president (co-defendant Ross Carey), and a bank loan officer who later became a witness against the defendants (co-defendant Eric Morton). Nazzal also recruited borrowers and directed others to procure loans on his behalf. During the conspiracy, these individuals obtained millions in fraudulent commercial loans from several banks.

         A. Fifth/Third Bank Frauds (Counts 1–3)

         Fifth/Third prohibited payment of broker’s fees from loan proceeds. To circumvent this prohibition, Nazzal regularly bribed loan officer (and testifying co-defendant) Eric Morton to approve loans for unqualified borrowers. In these “straw buyer” transactions, Nazzal would then submit fraudulent payoff letters for mortgages and pre-existing liens - when none existed - so that he or one of his companies could obtain payments at the respective closings. Only some of these transactions were presented at trial as examples. Those relevant to this appeal are discussed below and referenced by street address.

         1. 7845 Wyoming In this straw buyer transaction, Nazzal engineered a loan for Mountif Zeaiter, a sporadically employed and otherwise unqualified borrower. In order to get Fifth/Third’s approval for this $345, 000 loan, Nazzal gave Morton false tax returns greatly inflating Zeaiter’s income. Schneider prepared the paperwork and was present at the meeting when Zeaiter signed the documents. Schneider also prepared a purchase agreement (that was faxed from his law office) falsely stating that Zeaiter had given the seller $5, 000 in earnest money.

         Schneider was also present at the loan closing. Although the documents required Zeaiter to pay approximately $18, 000 at closing, he later testified that he never paid anything. Nazzal also submitted a fraudulent payoff letter for $12, 000 - in reality just a disguised fee for his brokering the loan. After the closing, Nazzal paid Schneider with a $500 cashier’s check and gave Morton $3, 500 cash.

         2. 8725 Livernois Nazzal again brought a straw buyer to Morton and again obtained a “brokerage” fee at closing in violation of Fifth/Third policy. The closing on this $320, 000 loan took place at Minnesota Title Agency, whose president (and co-defendant) Ross Carey later testified that Schneider was associated “whenever there was a closing involving [Nazzal].” In this deal, Schneider served as a “witness” on the purchase agreement, which falsely indicated that the borrower was making a $100, 000 down payment on the property. Nazzal obtained nearly $15, 000 at the closing.

         3. 9700 & 9701 Van Dyke Nazzal directed Morton to falsify the borrowers’ financial statements for a $612, 000 commercial loan secured by the 9701 property. Schneider signed a fraudulent payoff letter as the “Treasurer” of Alter Investments, falsely stating that the company had a prior mortgage on the property. This letter was faxed from Schneider’s law office. At the closing, Fifth/Third paid Alter Investments $22, 000 to clear title and Schneider received $2, 588 in attorney’s fees. Nazzal also paid Morton over $1, 000 for assisting with this transaction.

         For a $550, 000 loan on the 9700 property, Nazzal provided another fraudulent payoff letter for $48, 000 - again, where no prior lien existed. The transaction resulted in a payment of nearly $28, 000 to G&S Development with an additional payment of $500 to Schneider.

         4. 12803 Hamilton Two brothers had fallen behind on a construction loan for a gas station. During court proceedings, they happened to meet Nazzal and Schneider, who were at the courthouse that day on another matter. The brothers eventually obtained alternate financing from Nazzal. When this loan came due, they planned to sell their gas station and pay Nazzal with the proceeds.

         After the sale fell through, one owner agreed to buy the property from his brother so that Nazzal would get paid out on time. This last-minute deal also required an emergency payment to Morton, who had spent considerable time getting his superiors at Fifth/Third to approve the transaction. In advance of the closing, Schneider gave Morton a $1, 000 check drawn from his law firm’s trust account. Morton falsely wrote “payback previous personal loan” in the memo line of the check. He later testified unequivocally that he received this payment as a bribe.

         The brothers and Nazzal disputed various payoffs and fees prior to closing. Schneider signed one fraudulent payoff letter for $549, 000 as the “Treasurer” of G&S Development. The parties also disputed payment of $1, 750 in purported “attorney’s fees” to Schneider. Both brothers later testified that they “never hired” Schneider for the closing; they believed he represented Nazzal.

         B. Comerica Bank Fraud (Count 5)

         Nazzal defrauded Comerica using a so-called “lien jumping” scheme. Hours after closing on a $1 million loan with Comerica for a gas station, co-defendant Majed Tawbe executed a fraudulent, handwritten $500, 000 mortgage on the same property in Nazzal’s favor. Nazzal then managed to record this bogus mortgage several days before Comerica recorded its legitimate one. After Tawbe defaulted on his loan and fled the country, Comerica attempted to foreclose and learned of Nazzal’s prior recorded lien. Comerica and its title insurance company, First America Title, were thus required to initiate legal proceedings to quiet title. Eventually, First America Title agreed to pay Nazzal $135, 000 to release his fraudulent lien.

         C. Standard Federal Bank Fraud (Count 7)

         In March 2004, co-defendant Farouk Harajli obtained a $3 million loan from Standard Federal. Because part of this loan was secured by a gas station he owned, he promised not to obtain any secondary financing on that property or borrow any additional funds without Standard Federal’s consent.

         Later that spring, Harajli was involved in a contested divorce and turned to Nazzal for a short-term $100, 000 loan. Because Harajli’s wife co-owned most of his businesses, the court required her consent for all financial transactions - but she refused to sign off on the loan from Nazzal. To solve this problem, Nazzal proposed to falsify a Power of Attorney permitting Harajli to sign various business documents on his wife’s behalf. Schneider prepared the document, Harajli forged his wife’s signature, and Nazzal loaned him the $100, 000.

         When Harajli approached Nazzal for another loan, Nazzal performed a title search on Harajli’s properties and discovered that Standard Federal had not recorded its $3 million mortgage on the gas station. Nazzal then took steps to drain the equity from the property by recording two bogus mortgages totaling $750, 000. Schneider prepared both documents, which were notarized by his wife.

         Harajli eventually defaulted on his $3 million loan from Standard Federal. When Nazzal falsely claimed to have no knowledge of this loan, Standard Federal was forced to file an action to quiet title. Under Michigan’s recording statute, any prior knowledge of Standard Federal’s mortgage would have been fatal to Nazzal’s claim to be first in line on the property. Nazzal therefore testified falsely - and also arranged for Harajli to testify falsely - that he had no knowledge of this preexisting mortgage. In a further effort to make his claims seem legitimate, Nazzal arranged for co-defendant Carey of Minnesota Title Agency to backdate a check showing Nazzal’s “prior” acquisition of a title insurance policy with respect to his bogus mortgages. Nazzal also encouraged Carey to testify falsely to the same during a deposition and at trial.

         Nazzal eventually prevailed in the quiet title suit and was awarded $750, 000 - undoubtedly due to the perjured testimony. Between paying the judgment and attorney’s fees, Standard Federal Bank (by then Bank of America) and its commercial title company lost nearly $1 million.

         D. Falsification of Records (Count 8)

         Nazzal also engaged in several activities to avoid discovery. Eric Morton testified that when Nazzal feared their scheme would be uncovered, Nazzal told him they had “to keep [their] stories straight . . . that [Morton] was not bribed, [and that] the loans were above board . . . things along that line.” Nazzal similarly directed both Morton and Farouk Harajli to create affidavits and other documents falsely exonerating Nazzal from any wrongdoing. FBI agents recovered these papers along with many of the false tax returns used in the bank fraud schemes in a safe at Nazzal’s house during the execution of a search warrant. Co-defendant Carey later testified that after the execution of this warrant, Nazzal told him to lie in order “to keep [their] stories straight.” Schneider also played a role in the cover-up. At least three of Morton’s false written statements were notarized by employees at Schneider’s law office. Despite Schneider’s $1, 000 payment to Morton in connection with the 12803 Hamilton transaction, these documents falsely stated that Morton had never been bribed by Nazzal or any other person. Additionally, Schneider later told an FBI agent that he had never been an officer or partner of any of Nazzal’s companies - even though he had signed two fraudulent payoff letters as “Treasurer.” E. Convictions & Sentencing The jury convicted Nazzal on all indicted counts: conspiracy to defraud Fifth/Third, Comerica, and Standard Federal in violation of 18 U.S.C. § 1349 (Counts 1, 5, and 7); bank fraud against Fifth/Third in violation of 18 U.S.C. § 1344 (Count 2); corruptly giving Fifth/Third employee Eric Morton money in connection with bank transactions in violation of 18 U.S.C. § 215 (Count 3); and falsification of records in a federal investigation in violation of 18 U.S.C. § 1519 (Count 8). He received a below-Guidelines sentence of 110 months.

         The jury also convicted Schneider on Counts 1 and 7. As to Count 3, the jury found him guilty of the lesser-included offense of making an illegal payment of only $1, 000 (for his payment to Morton in connection with the 12803 Hamilton transaction). He received a below-Guidelines sentence of 48 months.

         United States v. Nazzal, 607 Fed.App’x 451, 452-56 (6th Cir. 2015) (footnotes omitted).

         On appeal, the Sixth Circuit rejected on the merits the petitioner’s arguments that (1) two notes conveyed to the Court by jurors indicated that they were not impartial or had engaged in premature deliberations, (2) the Court erred by failing to hold a hearing to examine whether the jury was subject to any bias, (3) the calculation of the loss amount by the Court at sentencing was “purely speculative, ” (4) the Court improperly applied a four-point sentencing enhancement for the petitioner’s leadership role in the mortgage fraud scheme and a two-point enhancement for obstruction of justice, (4) the Court failed to consider all of the relevant sentencing factors under 18 U.S.C. § 3553(a) because it never mentioned the petitioner’s age or health during its discussion on the record, and (5) the Court erred by failing to rule on the petitioner’s mid-trial motion for a judgment of acquittal on Count 8 of the indictment (falsification of records), after the petitioner passed on the Court’s invitation to file a brief in support of the motion and did not raise any objection to the conviction at sentencing. The petitioner filed a petition for a writ of certiorari in the Supreme Court, which was denied. Nazzal v. United States, 136 S.Ct. 130 (2015).

         The petitioner timely filed his section 2255 motion. The government has responded to the motion and the petitioner filed a reply. In his motion, the petitioner raised three grounds for relief. In each he contends that his trial counsel was ineffective in various respects: (1) by failing to file any post-trial brief in support of a mid-trial motion for judgment of acquittal on Count 8 of the indictment, which charged falsification of records, (2) by failing to object to the Court’s curative instructions given in response to two notes from the jury regarding their questions about the proceedings, and by failing to insist on a hearing to inquire about juror bias and premature deliberations, and (3) by coming “unprepared for trial” and “presenting no defense, ” declining the petitioner’s urgings to investigate witnesses and evidence, and “coercing” the petitioner not to testify. Embedded in the third ground for relief was a list of nine specific instances of deficient representation, which are discussed further below; two of those points are duplicative of and incorporate by reference the arguments in support of the first two grounds for relief, which separately are addressed below.

         The petitioner filed two supplemental briefs pointing out additional case law and a third supplement purporting to raise a “fourth ground for relief, ” in which he argues that the Court improperly awarded restitution to the banks that issued the loans, because “the loans were phoney, ” and the banks participated in the fraud scheme by not demanding “evidence of the financial sufficiency of the mortgagees, ” so the ...

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