## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-2847

___________ United States of America, * * Plaintiff - Appellee, * * v. * * * Donald B. Pennington, * * Defendant - Appellant. *

___________ Appeals from the United States District Court for the No. 97-2888 Eastern District of Arkansas. No. 97-3152

___________ United States of America, * * Plaintiff - Appellee/Cross- * Appellant, * * v. * * * John E. Oldner, * * Defendant - Appellant/Cross- * Appellee. *

___________ Submitted: September 22, 1998The HONORABLE STEPHEN M. REASONER, Chief Judge of the United 1 States District Court for the Eastern District of Arkansas. -2- Filed: February 5, 1999

___________ Before BEAM, LAY, and LOKEN, Circuit Judges.

___________ LOKEN, Circuit Judge.
Inthe early 1990s, Donald Pennington was President of Harvest Foods, a grocery store chain. He received secret payments or kickbacks from consultant John Oldner and food brok

er Billy Armstrong based on monies they received from Harvest Food s and its suppliers. Pennington and Oldner were indicted on multiple counts o f mail fr aud and money laundering. (Armstrong was indicted but not tried because o f illness.) A jury convicted Pennington and Oldner of aiding and abetting mail fraud in violation of

18 U.S.C. §§ 1341 and 2, and of twelve counts of aiding and abettin g money launde ring in violation of 18 U.S.C. §§ 1957 and 2. It convicted Oldner o f witness tampering in violation of 18 U.S.C. § 1512(b)(1). The district court sentenced 1 Pennington to forty-eigh

t months in prison. After granting a downward departure, the court sentenced Oldner to twenty-eight months in pr ison. Both defendants appeal their convictions. Pennington appeals his sentence. The government cross appeals Oldner’s sentence. We affirm both judgments.

I. Challenges to the Government’s Case.
Viewing the evidence in the light most favorable to the jury’s verdict, the trial record reveals four distinct aspects of the scheme to defraud Harvest Foods.

1. In Fe bruary 1990, Harvest Foods began paying $10,000 per month t o Oldner’s consulting company, John E . Oldner and Associates. The monthly paymentsMc Pherson pleaded guilty to mail fraud charges stemming from hi s 2 involvement in the scheme. -3- increas ed to $15,000 per month in July 1990. Shortly after Oldner received eac h
mon thly payment, he sent a check to Capitol City Marketing, a consulting compan y owned by Pennington, for exactly one-half of the amount paid by Harvest Foods.

2. In the spring of 1990, another Harvest Foods employee, Scott McPherson , decide d to award a supply contract to SAJ, Inc. Pennington intervened, tellin g McPherson to get Oldner invol ved because any commission or bonus Oldner received from SAJ could be split among the three of them. Oldner then entered into a
co nsulting agreement with SAJ under which he received a $90,000 bonus fo r negotiati ng the contract with Harvest Foods plus a commission on all SAJ sales t o Harvest Foods. SAJ increased its prices to Harvest Foods by one percent to cover the bonus paid to Oldner. When Oldner received payments from SAJ, he wrote checks for
one thi rd of the amounts to Capitol City Marketing (Pennington’s company) and t o Hori zon Marketing (a consulting company McPherson formed for this purpose a t Penni ngton’s suggestion). After McPherson moved to Arizona, he continued t o receive che cks from Oldner until he told Pennington he no longer wished to b e involved. SAJ’s president testified that Harvest Foods pai d too much for its purchases

2 under this arrangement.
3. The owner of a Harvest Foods supplier, Bi g R Ice, testified that his company normally did not use food brokers or consultants. However, base d on its understanding that su ppliers had to go through Oldner to get Harvest Foods business, Big R Ic e signe d two consulting contracts with Oldner, one paying John E. Oldner an d Associates $50,000, and the other paying Oldner personally $ 25,000. The only service Oldne r provided was to negotiate a supply agreement with Harvest Foods. Afte r
rece iving payments from Big R Ice, Oldner sent checks to Capitol City Marketin g totaling $25,000, one-half the amount Big R Ice paid to John E. Oldner and Associates.-4-

4. Billy Armstrong negotiated a supply contract with Harvest Foods on behalf of his client, Coleman Dairy. After ninety days, Coleman Dairy began payin g Armstr ong a four percent monthly commission on all sales to Harvest Foods

. Arms trong sent a check to Capitol City Marketing for one-half of each monthl y payment, showing the payments on his books as “advertising and flowers.”
Pennington deposited all the kickb acks he received from Oldner and Armstrong into a Capitol City Marketing bank account. Capitol City had no other income. The money laundering counts of conviction concerned subsequent transfers out of th e Capitol City account into Pennington’s personal bank account.

A. The Mail Fraud Counts.

To sustain a conviction for aiding and abetting mail fraud, the government must prove defendants knowingly aided and abetted a schem e to defraud in which use of the mails was reasonably foreseeable. See United States v. Hil debrand , 152 F.3d 756, 761 (8th Cir.), cert. denied sub nom , Webb v. United States , 119 S. Ct. 575 (1998)

. Congress recently amended the mail fraud statutes to provide that the term “scheme or artific e to defraud” in 18 U.S.C. § 1341 includes a scheme “to deprive another of the in tangible right of honest services.” 18 U.S.C. §1346. Though most “intangibl e rights” mail fraud cases have involved corrupt public officials, we have held that th e pl ainlanguage of § 1346 applies as well to schemes to violate a private secto r fiduciary’s duty to provide honest servic es to his clients. See United States v. Jain , 93 F. 3d 436, 441 (8th Cir. 1996), cert. denied , 117 S. Ct. 2452 (1997). In this case, the gove rnment’s mail fraud theory was that defendants’ kickback schemes deprive d Harvest Foods of its intangible right to the honest services of CEO Pennington.

1. Pe nnington first argues the mail fraud indictment was legally insufficien t because it charged defendants with a scheme to defraud Harvest Foods of its right to the “faithful and impartial services” of Pennington, whereas the statute prohibit sPenningtonargues the district court erred in instructing the jury that “schem e 3 to d efraud” includes “cheat[ing] another out of” or “obtaining” the intangible right to “faithful, impartial and honest services.” Pennington did not object to this part of the instructions at trial. Though it could have been better worded, there was no plain error. -5- depriving another of the right to “honest” services. Pennington first raised this issue in the middle of trial. When an indictment is challenged after jeopardy attaches, it is uphel d “unless it is so defective that by no reasonable construction can it be said t o charge the offense for which the defendants were conv icted.” United States v. Just , 74 F.3d 902, 904 (8th Cir. 1996) (quotation omitted).
Penning ton contends “faithful and impartial” are not the same as “honest ” services, and therefore the indictment failed to charge a crime. An indictment need not
use the sp ecific words of the statute, so long as “by fair implication” it alleges a n of fense recognized by law. United States v. Mallen , 843 F.2d 1096, 1102 (8th Cir.), cert. deni ed , 488 U.S. 849 (1988). Here, the mail fraud counts alleged schemes t o de fraudand cited 18 U.S.C. § 1341, the operative offense-declaring statute. Th e indictment’s failure to cite § 1346, a definitional provision, and to use its specific term, “honest” services, does not mean no crime was charged. Moreover, Pennington does not argue, and in our view could not argue, that the indictment did not sufficientl y apprise him of the charges and allow him to prepare effectively for trial. See United States v . Diaz-Diaz , 135 F.3d 572, 576 (8th Cir. 1998). Thus, this contention i s without merit. 3

2. Both Pennington and Oldner argue the evidence was insufficient to convict them of mail fraud because there was no evidence they intended to defraud Harves t Foods of Pennington’s honest services, and because Harvest Foods in fact benefitted fromthe con tracts negotiated by consultant Oldner. We will overturn a jury verdic t only if no r easonable jury could have found the offense elements proved beyond a reasonable doubt. See Hildebrand , 152 F.3d at 761.-6-

There was overwhelming evidence that Pennington received secret kickback s from Oldner and Armstrong from contractual payments they received as a result o f doing bus iness with Harvest Foods and its suppliers. As a Harvest Foods corporat e officer, Pennington owed Harvest Foods a fiduciary duty of loyalty, including the duty to disclose all material in formation. Yet he never disclosed these payments to anyone at Harvest Foods; indeed, he concealed the payments by use of a sham corporation , Ca pitol City Marketing. Pennington and Oldner correctly assert that, when dealin g with business transactions in the private sector, a mere breach of fiduciary or employee dut y may not be sufficient to deprive a client or corporation of “honest services” fo r purposes of § 1346 -- to be guilty of mail fraud, defendants must also cause or intend to cause actual harm or injury, and in most business contexts, that means financial or
e c onomic harm. See Jain , 93 F.3d at 441-42. However, proof of intent to harm may be inferred

from the willful non-disclosure by a fiduciary, such as a corporate officer, of material information he has a duty to disclose. See id. at 442; United States v

. Bronston , 658 F.2d 920, 926-27 (2d Cir. 1981), cert. denied , 456 U.S. 915 (1982) ; United States v. Von Barta , 635 F.2d 999, 1006 (2d Cir. 1980), cert. denied , 450 U.S. 998 (1981). The jury may infer intent from circumstantia l evidence. See United States v. Blumeyer , 114 F.3d 758, 767 (8th Cir.), cert. denied , 118 S. Ct. 350 (1997). Here, a reasonablejury could find that the scheme was intended to and did defraud Harvest Foods by depriving it of Pennington’s honest services in obtaining the mos t advantageous supply, brokerage, and consulting contracts that could be negotiated.
Oldner argues he should be acquitted of aiding an d abetting a scheme to defraud because th ere was no proof he knew of Pennington’s duty to Harvest Foods. W e disagree. The jury could reasonably find that Oldner, an experienced businessman , knew th e secret kickbacks to Capitol City Marketing violated Pennington’s duty t o disclose material information to his employer.

B. The Money Laundering Counts.-7-

Pen ningtonand Oldner argue the evidence was insufficient to convict them o f money laundering in violation of 18 U.S.C. §1957, which requires proof the y knowin gly engaged in a financial transaction involving the proceeds of a crimina l offense. The y argue there was no proof Oldner’s payments to Pennington came from the f unds received from Harvest Foods, SAJ, and Big R Ice and were therefore th e proceeds of criminal fraud. This contention is without merit. The government nee d
no t trace funds to prove a violation of § 1957. See United States v. Moore , 27 F.3 d 969, 9 76-77 (4th Cir.), cert. denied , 513 U.S. 979 (1994). Here, the timing an d amounts of Oldner’s payments to Pennington permitted a reasonable jury to find that these payments were a portion of Oldner’s proceeds from the scheme to defraud.
Oldner arg ues he cannot be convicted of aiding and abetting money laundering because his involvement in the scheme ended with the mailing of checks t o Pennington

. The district court correctly instructed that Oldner may be convicted o f aiding and abetting if he knew money laundering was being committed an d “knowingly acted in some way for the purpose of causing, encouraging, or aiding” the money laundering. See, e.g. , United States v. Farm & Home Sav. Ass’n , 932 F.2 d 1256, 1261 (8 Cir. 1991). Oldner paid Pennington through a sham corporation , th Capitol City Marke ting. Oldner pretended the payments were for consulting work by Penning ton and provided Pennington with a tax Form 1099 to evidence this pretense. Starting i n May 1991, Oldner stopped sending checks directly to Capitol Cit y Marketing; i nstead, he wrote checks to his accountant and instructed him to purchase cashier ’s checks payable to Capitol City. A reasonable jury could find from thi s evidence that Oldner knew Pennington violated § 1957 by routing fraud proceed s through t he Capitol City Marketing account, and that Oldner knowingly encourage d and aided those violations.

C. Oldner’s Obstruction of Justice.We reject Oldner’s contention the district court erred in excluding testimon y 4 that Oldner heard his fo rmer attorney give advice similar to some of the things Oldner to ld McPherson during the taped conversation. The district court did not abuse it s discretion in excluding this testimony a s speculative. In any event, any error would be harmless because the testimony did not under mine McPherson’s testimony that Oldner told him to lie about their financial relations.

-8- In 1992, the government began investigating Oldner, Pennington an d McPherson. McPherson agreed to cooperate. In a taped conversation between Oldner and McPh erson, Oldner suggested McPherson tell the investigators that Oldner ha d agreed to pay McPherson around $150,000 over two years fo r consulting work, but the agreement

was not completed because McPherson moved to Arizona. McPherso n testi fied at trial that he never performed any consulting work for Oldner. The jur y convictedOldner of tampering with a witness in violation of 18 U.S.C. §1512(b)(1), which prohibits attempts to “knowingly . . . corruptly persuade[] another person . . . to (1) influence, delay, or pre vent the testimony of any person in an official proceeding.”

Oldner argues that § 1512 only prohibits witness tampering by specific means, such as physical force and intimidation. But he relies on a case decided before th e statute was amended to include tampering by corrupt persuasion. After carefull y
ex amining this amendment and its legislative history, the Third Circuit concluded the ambiguous term “corruptly persuades” includes “attempting to persuade someone to provide false information to federal investigators.” United States v. Farrell , 126 F.3d 484, 488 (3d Cir. 1997) (emphasis in original). We agree. Here, the evidence wa s sufficient for the jury to find that Oldner violated § 1512(b)(1) by telling McPherson to lie about why Oldner had paid McPherson a portion of the fraud proceeds. 4-9- II. Alleged Trial Errors.
Penningt on argues his Sixth Amendment right to counsel was violated because his trial counsel had a conflict of interest -- he was a member of the law firm tha t represented Pennington in a civil case, and the law firm was facing a potentia l $6,000, 000 malpractice suit by Pennington for causing his appeal from an advers e judgment to be dismissed as untimely. Because Pennington failed to raise this issu e at trial, he must show “that an actual conflict of intere st adversely affected his lawyer’s performance.” Cuyler v. Sullivan , 446 U.S. 335, 348 (1980); United States v. Acty , 77 F.3d 1054, 1056-58 (8th Cir.), cert. denied , 117 S. Ct. 189 (1996). Pennington has made neither showing. The allegedly possible lawsuit against counsel’s law firm did
no t create an actual

conflict of interest between Pennington and his counsel in th e criminal case. See United States v. Moore , 159 F.3d 1154, 1158 (9th Cir. 1998). In addition, counsel defended Pennington vigorously at trial, and he has not identified any instance of adverse performance.

Pe nningtonand Oldner argue the district court abused its discretion by no t declaring a mistrial when a juror reported that Pennington’s wife put a quarter in the ju ror’s parking meter and smiled at her before the second day of the jury’ s deliberat ions. Like the district court, we reject Pennington’s contention because h e was p resent when his wife plugged the meter and therefore cannot benefit from an y miscond uct. Oldner argues outside juror contact of this kind is presumptivel y preju dicial under Remmer v. United States , 347 U.S. 227 (1954), and the jury ma y have held Mrs. Pennington’s actions against him as well as Pennington. Th e government argues the presumption of prej udice does not apply in this case. Compare United States v. Wallingford , 82 F.3d 278, 281 (8th Cir.) (off-hand remark to juror by
a restaurant employee not presumptively prejudicial), cert. denied , 516 U.S. 117 2 (1996). Whether or not the presumption applies, we agree with the district court that the co ntact between Mrs. Pennington and the juror did not prejudice Oldner. Th e contact was short, i t was explained by Pennington as a kind gesture his wife routinely-10-

does for o thers, and it did not involve a favor of sufficient magnitude to likel y influence a juror. Moreover, the contact occurred on the second day of deliberations,
an d the jury’s dated verdict forms show they had returned guilty verdicts agains t Oldner on all the mail fraud counts, one money laundering count, and the obstruction of justic e count the previous day. The district court did not abuse its discretion i n refusing to declare a mistrial. See United States v. Rhode nizer , 106 F.3d 222, 225 (8th Cir. 1997) (standard of review).

Pennin gton argues the district court erred by not excusing a Harvest Food s employee from the jury when the new CEO of Harvest Foods, Harry Janson, testified as a government rebuttal witness. Pen nington waived this issue by not challenging the juror w hen the jury was empaneled because the basis for the objection was the n know n. See Robinson v. Monsanto Co. , 758 F.2d 331, 334-35 (8th Cir. 1985)

. Pennington knew the juror worked for Harvest Foods, knew Janson as CEO of Harvest Foods was a possible witness, and specifically asked the juror during voir dire if she knew Janson.

Penni ngtonfurther argues the district court abused its discretion by allowin g McPherson to tes tify he had pleaded guilty to mail fraud as a result of participating in the SAJ sch eme. This argument is without merit. A confederate’s guilty plea i s admissib le during the government’s direct examination as evidence of the witness’ s credibility and of his acknowledgment he participated in the offen se. See United States
v. Hutch ings , 751 F.2d 230, 237 (8th Cir. 1984), cert. denied , 474 U.S. 829 (1985)

. He re, the court gave an appropriate limiting instruction explaining that McPherson’ s plea could not be used as evidence against the defendants.
III. Sentencing Issues.

A. Pennington . In determining Pennington’s Guidelines sentencing range, th e district court properly began with the higher base offense level for money laundering.Inde ed, both Pennington and Oldner appear to have received a sentencin g 5 windf all when the district court improperly grouped their mail fraud and mone y l a undering counts together. See O’Kane , 155 F.3d at 971-74. The government does not raise this issue on appeal. The district court did consider the punitive damage award in the civil case in 6 deciding to sentence Pennington toward the bottom of his Guidelines range. -11- SeeU.S.S.G. §§ 2S1.2, 3D1.3(a); Hildebrand , 152 F.3d at 762 . The money laundering gui deline adjusts the base offense level according to the value of the proceed s laundered. See U.S.S.G. § 2S1.2(b)(2). Pennington argues the court erred i n agg regating the proceeds from his twelve money laundering counts of conviction i n dete rmining the value of proceeds laundered. This contention is without merit. Th e
mon ey laundering counts were properly grouped. See U.S.S.G. § 3D1.2(d); Unite d States v . O’Kane , 155 F.3d 969, 974 (8th Cir. 1998). The Guidelines expressl y provide that “the offense level applicable to a G roup is the offense level corresponding to the aggregated quantity.” U.S.S.G. § 3D1.3(b). 5

Penni ngtonnext argues the district court erred in denying him a downwar d depart ure because Harvest Foods received a $6,000,000 judgment in its civil frau d act ionagainst him for the conduct at issue in the criminal case. The district cour t 6 concluded that an adverse ju dgment in a prior civil case involving the same fraudulent conduct is not a permissibl e basis to reduce the prison sentence for the criminal fraud. We agree. The adverse civil judgment against Pennington is quite different from the subst antial, voluntary restitution that we held a permissible basis for downwar d departure i n United States v. Garlich , 951 F.2d 161, 163 (8th Cir. 1991). Like th e
ca reer loss factor held an impermissible basis for downward departure in Koon v

. United States , 518 U.S. 81, 110 (1996), it is entirely foreseeable that fraud victims will seek to recover their damages in civil actions against fraud perpetrators. Yet th e Senten cing Commission did not cite an adverse civil judgment as a mitigating facto r in sentencing for fraud in its lengthy Commentary to U.S.S.G. § 2F1.1, the ver y detailed Guideline fo r fraud offenses. Instead, that Commentary, if anything, is to the-12-

contrary. See § 2F1.1, comment. (backg’d) (“[a] defendant who has been subject to civil o r administrative proceedings for the same or similar fraudulent conduc t demonstrates aggravated criminal intent and is deserving of additional punishment”). This is strong evidence that an adverse civil judgment does not warrant a downwar d depart ure because it does not take a fraud case out of the heartland of § 2F1.1

. Therefore , we conclude the district court did not abuse its discretion in deciding no t to gra nt a downward departure from Pennington’s Guidelines prison sentence. O f course, the question whether satisfying such a civil judgment should be taken int o account in determining a criminal monetary penalty such as fine or restitution is no t before us, and we do not consider it.
Finally, Pennington argues the district court committed a double counting error by adj usting his money laundering base offense level upward because he knew th e laund ered monies were fraud proceeds. See U.S.S.G. § 2S1.2(b)(1)(B). Thi s contention is foreclosed by our contrary decision in United States v. Hare , 49 F.3d 447, 452 (8th Cir.), cert. denied , 516 U.S. 879 (1995).

B. Oldn er . The district court granted Oldner a twenty-month downwar d depart ure based upon a combination of factors -- because Pennington’s conduc t involved a much greater breach of trust yet his Guidelines range was the same , Oldner’s health problems, and h is need to support his mother. The government crossappeal s this departure. Because the government did not object at sentencing, w e review the departure for plain error. See United States v. Posters ‘N’ Things Ltd. , 969 F.2d 652, 663 (8th Cir. 1992), aff’d , 511 U.S. 513 (1994). The government’ s contention on appeal that it had no notice of the district court’s intent to depart i s waive d because it was not raised to the district court. See United States v. Barajas

Nunez , 91 F.3d 826, 830 (6th Cir. 1996).

To su cceed under plain error review, the government must show there was a clear error affecting substantial rights that resulted in a miscarriage of justice. Se e-13-

Unit ed States v. Olano , 507 U.S. 725, 735-36 (1993). The government argues th e distri ctcourt relied on an improper basis for the downward departure becaus e Pen nington’s more serious breach of trust was accounted for in the Guidelines by his two-l evel enhancement for abuse of trust. In concluding that Pennington’s an d Oldner’s comparab le Guidelines ranges were inappropriate, the government explains, the court apparently overlooked the fact that Oldner’ s base offense level was enhanced by his conviction on th e obstruction of justice count. Because the district court stated that Oldner ’s health and support of his mother do not by themselves warrant a departure, the departure is attributable to an impermissible factor and must be reversed.
Though this argument might well have had merit if timely presented to th e district court, we conclude i t does not entitle the government to plain error relief. The governmen t

challenges one of the departure factors the district court expressl y considered in combination. We do not know whether the district court would hav e agree d with that challenge and, if so, how it would have affected the court’s decision to depart. In these circumstan ces, we conclude that this downward departure, like the downward departure in United States v. Ragan , 952 F.2d 1049 (8th Cir. 1992), “di d not result in a miscarriage of justice.”
The judgments of the district court are affirmed.
A true copy.

Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.