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Parties Involved:
Floyd E. Donwerth
Appellant
United States of America
Appellee

Document Text:

FI LED 

Uoited States Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

vs. 

FLOYD E. DONWERTH, 

Defendant-Appellant. 

TENTH CIRCUIT APR 16 1990 

ROBERT L. HOECKER 

Clerk 

No. 89-6149 

(D.C. No. 88-166-A) 

(W.D. Okla.) 

ORDER AND JUDGMENT* 

Before HOLLOWAY, Chief J~~ge, BALDOCK, Circuit Judge and 

BRIMMER, District Judge. 

Defendant-appellant Floyd E. Donwerth appeals from the denial 

of his Fed. R. Crim. P. 35 motion for correction and reduction of 

sentence. Pursuant to a plea agreement, Donwerth was convicted of 

two counts of embezzlement of labor union assets, 1 29 U.S.C. 

§ 50l(c). He was sentenced to three years imprisonment on the 

first count and to five years imprisonment on the second: however, 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

** The Honorable Clarence A. Brimmer, Jr., Chief Judge, United 

States District Court of the District of Wyoming, sitting by 

designation. 

1 Count I of the information alleged defendant embezzled more 

than $75,000 during 1986, count II alleged embezzlement of more 

than $75,000 during the first half of 1987. 

Appellate Case: 89-6149 Document: 01019971287 Date Filed: 04/16/1990 Page: 1 
execution of sentence on the second count was suspended in favor 

of five years probation on the condition that the defendant make 

restitution of $574,983.24. According to the International 

Trustee of the Plumbers and Pipefitters Union, this amount was 

embezzled by the defendant while the defendant served as business 

manager and financial secretary of Local 344. 2 

On appeal, defendant contends that the district court has 

imposed an illegal sentence and abused its discretion by failing 

to reduce the sentence. Defendant contends that the restitution 

violates the Federal Probation Act, 18 U.S.C. § 3651 3 

2 The estimate was provided by an accounting firm retained by 

the International Trustee, and was broken down in rounded amounts 

as follows: 

Vacation fund 

Benefit administration fund 

Health and welfare fund 

Local union fund 

Total loss 

$200,000 

228,000 

69,000 

25,000 

$574,000 

Rec. supp. I, vol. I at 20. 

3 18 U.S.C. § 3651, applicable to offenses committed before 

November 1, 1987, provided: 

Upon entering a judgment of 

conviction •.. any court ... when satisfied 

that the ends of justice and the best interest of 

the public as well as the defendant will be served 

thereby, may suspend the imposition or execution of 

sentence and place the defendant on probation for 

such period and upon such terms and conditions as 

the court deems best. 

While on probation and among the conditions 

thereof, the defendant--

May be required to make restitution or 

reparation to aggrieved parties for actual damages 

or loss caused by the offense for which conviction 

was had ••.. 

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(repealed Nov. 1, 1987), because the restitution amount includes a 

portion of his salary and includes salaries paid to family 

members. Defendant also contends that the district court "failed 

to individualize the sentence." As we understand defendant's 

arguments, he contends that the district court ordered an amount 

of restitution beyond what the statute allows and failed to 

exercise proper discretion in sentencing. We have jurisdiction to 

consider the merits of these Rule 35 issues. See 3 C. Wright, 

Federal Practice and Procedure§ 588 (1982}; United States v. 

Vigil, 818 F.2d 738, 740 (10th Cir. 1987}; see also United States 

v. Hughey, 877 F.2d 1256, 1259 (5th Cir. 1989} (similar claim 

brought under Rule 35), cert. granted, 110 S. Ct. 716 (1990}; 

United States v. Davies, 683 F.2d 1052, 1053 (7th Cir. 1982} 

(same}. Our review of the district court's denial of the Rule 35 

motion "is narrowly limited to the determination whether [the] 

sentence is within the requisite legislative limits, and, if so, 

whether its imposition was an abuse of discretion." Davies, 683 

F.2d at 1054. We vacate the restitution portion of the sentence, 

and remand for entry of a proper probation condition after 

reconsideration concerning the disputed restitution amount. 

I. 

Prior to his election as business manager and financial 

secretary in 1982, defendant served as the local fund 

administrator, exercising stewardship over various funds which 

benefited union members. After his election, defendant continued 

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to serve as the fund administrator and received compensation of 

$149,316.44 over a five-year period from the benefits 

administration fund, 4 - in addition to his full-time salary as 

business manager and financial secretary. According to the union, 

defendant's receipt of additional compensation as fund 

administrator was not authorized while he served as business 

manager and financial secretary. Defendant also hired his sister 

as office manager of Local 344. According to the union, $40,000 

of compensation was paid to defendant's family members without 

proper union authorization. 

II. 

The primary issue in this appeal is whether amounts paid as 

compensation to defendant and his sister for services performed 

constitute "actual damages or loss caused by the offense for which 

conviction was had" within the meaning of 18 U.S.C. § 3651 as it 

then existed. In United States v. Vance, 868 F.2d 1167 (10th Cir. 

1989), we held that a restitution order may permissibly encompass 

all actual losses in connection with a fraudulent scheme, not 

4 The benefit administration fund was an omnibus fund which 

collected employer contributions due under the collective 

bargaining agreement and then distributed appropriate amounts to 

various funds including the vacation fund, health and welfare 

fund, apprenticeship fund and building maintenance fund. Supp. 

rec. I, vol. II at 2 (defendant's objections to presentence 

report). Amounts accumulated in these funds would later be 

distributed. Id. at 6. For example, after four to eight weeks, a 

six month accumulation in the vacation fund would be distributed 

to the accounts of individual union members. Id. The 

contributions collected under the collective bargaining agreement 

included an amount for administering the various funds. Id. at 2. 

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merely those losses associated with the counts of conviction. Id. 

at 1169-70; see also Davies, 683 F.2d at 1054-55. Thus, it is 

clear that the trial court was not constrained by the counts of 

conviction and could impose restitution for amounts embezzled 

during the defendant's entire scheme. 

In this case, the fraudulent scheme was embezzlement, the 

elements of which include "(l) a conversion--or, in other words, 

an unauthorized appropriation--of property belonging to another, 

where (2) the property is lawfully in the defendant's possession 

(though for a limited purpose) at the time of appropriation, and 

(3) the defendant acts with knowledge that his appropriation of 

the property is unauthorized, or at least without a good-faith 

belief that it has been authorized." United States v. Stockton, 

788 F.2d 210, 217 (4th Cir.), cert. denied, 479 U.S. 840 (1986). 

Any amount of restitution based upon this embezzlement scheme must 

be directly related to the loss of the victim and must be 

supported by the evidence. United States v. McMichael, 699 F.2d 

193, 195 (4th Cir. 1983); Davies, 683 F.2d at 1055. Subject to 

those constraints, the district court may order "restitution in an 

amount representing the total loss to the victims of a crime." 

Vance, 868 F.2d at 1167; United States v. Woods, 775 F.2d 82, 88 

(3rd Cir. 1985). 

Defendant objected to the presentence report on the grounds 

that the salary amounts paid by the benefit administration fund 

were not properly included in the restitution amount. Defendant 

argued that the compensation was disclosed, individual income 

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taxes were paid, and the independent auditors never questioned the 

compensation arrangements. 

Defendant also objected to the inclusion of the compensation 

merely because its payment may have violated the Employee 

Retriement Income Security Act (ERISA), 29 U.S.C. §1001-1461. 

Defendant conceded that "[t]he Department of Labor has always 

taken the position that the [benefits administration fund] had 

ERISA implications." Supp. rec. I, vol. II at 2. However, the 

district court made no finding that the benefit administration 

fund was subject to ERISA and that the payment of the compensation 

resulted in an ERISA civil violation. 

The benefits administration fund serves as a conduit for the 

health and welfare fund, a fund that defendant acknowledges is 

subject to ERISA. ERISA would prohibit the defendant, as a 

fiduciary, from receiving a salary for administering an employee 

welfare plan while receiving his regular full-time salary. See 29 

u.s.c. §§ 1002(14)(A); 1106(a)(l)(D), (b)(l); 1108(c)(2); 29 

C.F.R. § 2550.408c-2(b)(2) (1989); Donovan v. Daugherty, 550 F. 

Supp. 390, 399, 407-08 (S.D. Ala. 1982); Gilliam v. Edwards, 492 

F. Supp. 1255, 1264, 1267 (D.N.J. 1980). Likewise, ERISA also may 

restrict a fiduciary from hiring relatives to perform services 

because the fiduciary may be exercising the authority, control or 

responsibility of his office in conflict with the interests of the 

plans for which he acts. See 29 u.s.c. §§ 1002(14)(A) & (F); 

1104(a)(l)(A); 1106(a)(l)(C) & (D), (b)(l); 29 C.F.R. 

§ 2550.408b-2(e). 

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As noted, the district court did not base its restitution 

decision on an ERISA violation. Rather the district court 

concentrated upon "the entire offense misconduct'' and determined 

that, because there was breach of defendant's general fiduciary 

duty, the entire amount of compensation paid by the benefits 

administration fund should be included in restitution. 5 The 

district court did not separately consider the $40,000 paid by the 

fund to defendant's sister. The district court appears to have 

concluded that because the defendant was embezzling from other 

funds, any compensation paid to him or his relatives by the 

5 

Rec. 

The district court said: 

Well, concerning restitution, I realize that 

sentencing does not proceed through the application of 

the rules of evidence and it's a much more relaxed type 

of proceeding in that respect than a civil case would 

be. But the court may order restitution for such amount 

as the Court finds, on the basis of the information 

available, represents the entire offense misconduct on 

the part of the Defendant. And it has been represented 

that an audited reconstruction from a reliable firm is a 

reconstruction in the approximate amount of $575,000. A 

portion of that account does represent payments from the 

Benefits Administration Fund [(BAF)], and I specifically 

find that that is properly included in a restitutionary 

figure. 

There is enough information here from which I think 

the conclusion naturally follows that payment of the BAF 

compensation was irregularly done, was entirely 

self-serving in contradiction of any reasonable 

construction that one should give to his own fiduciary 

duties and, indeed, represented compensation without 

regard to specific services done, representing at a 

minimum a risk of an ERISA violation at the very time 

when, while Mr. Donwerth was receiving this 

compensation, he was stealing other monies from the 

Union and its membership. Now, you put that together 

and you do not have a proper basis for payment of that 

compensation. Rather, you have a violation of a 

fiduciary's duty, whether that's defined by ERISA or 

otherwise. 

supp. I, vol. I at 20-21. 

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benefit administration fund was likewise the product of 

embezzlement. 

Without question, unauthorized salary may represent the 

fruits of embezzlement under§ 50l(c). United States v. Lavergne, 

805 F.2d 517, 523 (5th Cir. 1986); United States v. Andreen, 628 

F.2d 1236, 1244-45 (9th Cir. 1980); United States v. Oates, 467 

F.2d 129, 132 (3rd Cir. 1972); United States v. Duff, 529 F. Supp. 

148, 150 (N.D. Ill. 1981). However, "the mere taking of 

unauthorized salary increases does not constitute a§ 50l(c) 

violation. Criminal intent is an element of a§ 50l(c) offense." 

United States v. Rubin, 591 F.2d 278, 282 (5th Cir.), cert. 

denied, 444 U.S. 864 (1979). Stated another way, "[o]ne must 

willfully take the salary increases, with knowledge that the 

increases are not authorized according to the Union's constitution 

and bylaws, to violate§ 50l(c)." Id. (emphasis omitted). There 

must be "fraudulent intent to deprive the union of its funds." 

United States v. Goad, 490 F.2d 1158, 1166 (8th Cir. 1973), cert. 

denied, 417 U.S. 945 (1974); see also Morissette v. United States, 

342 U.S. 246, 270-73 (1952) (knowledge requirement). While 

excessive compensation or compensation for services not performed 

may bear upon intent, "[a] defendant who exercises dominion over 

property in the good-faith belief that the property is his own, or 

that the appropriation is otherwise authorized, is not guilty of 

embezzlement." Stockton, 788 F.2d at 219. 

Defendant admitted embezzling large amounts from union funds 

other than the benefit administration fund. In his objections to 

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1 

the presentence report, defendant disputed that compensation 

amounts from the benefit administration fund were embezzled. On 

this record, after applying the correct legal standard, we cannot 

find sufficient evidence to support a finding that the 

compensation amounts paid to defendant and his sister for work 

performed represent funds which were knowingly converted to the 

defendant's purposes without union authorization. 

We express no opinion on the merits. Instead, the district 

court shall reconsider this disputed issue in accordance with this 

order and enter findings, which must be attached to the 

presentence report, in accordance with Fed. R. Crim. P. 

32(c)(3)(D). Although the district court has discretion 

concerning the procedure to be followed on remand, United States 

v. Peterman, 841 F.2d 1474, 1484 (10th Cir. 1988), cert. denied, 

109 S. Ct. 783 (1989), the court should consider whether an 

evidentiary hearing is needed for reliable resolution of this 

disputed issue. The restitution portion of the judgment is 

VACATED and REMANDED for entering of a proper probation condition 

in light of the district court's findings after reconsideration. 

-9-

Entered for the Court 

Bobby R. Baldock 

Circuit Judge 

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