United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 97-2847

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United States of America, *

*

Plaintiff - Appellee, *

*

v. *

*

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Donald B. Pennington, *

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Defendant - Appellant. *

___________ Appeals from the United States

District Court for the

No. 97-2888 Eastern District of Arkansas.

No. 97-3152

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United States of America, *

*

Plaintiff - Appellee/Cross- *

Appellant, *

*

v. *

*

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John E. Oldner, *

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Defendant - Appellant/Cross- *

Appellee. *

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Submitted: September 22, 1998
The HONORABLE STEPHEN M. REASONER, Chief Judge of the United 1

States District Court for the Eastern District of Arkansas.

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Filed: February 5, 1999

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Before BEAM, LAY, and LOKEN, Circuit Judges.

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LOKEN, Circuit Judge.

In the 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 broker Billy Armstrong based on monies they received from Harvest

Foods and its suppliers. Pennington and Oldner were indicted on multiple counts of

mail fraud and money laundering. (Armstrong was indicted but not tried because of

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 abetting

money laundering in violation of 18 U.S.C. §§ 1957 and 2. It convicted Oldner of

witness tampering in violation of 18 U.S.C. § 1512(b)(1). The district court sentenced 1

Pennington to forty-eight months in prison. After granting a downward departure, the

court sentenced Oldner to twenty-eight months in prison. 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 February 1990, Harvest Foods began paying $10,000 per month to

Oldner’s consulting company, John E. Oldner and Associates. The monthly payments
McPherson pleaded guilty to mail fraud charges stemming from his

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involvement in the scheme.

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increased to $15,000 per month in July 1990. Shortly after Oldner received each

monthly payment, he sent a check to Capitol City Marketing, a consulting company

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,

decided to award a supply contract to SAJ, Inc. Pennington intervened, telling

McPherson to get Oldner involved because any commission or bonus Oldner received

from SAJ could be split among the three of them. Oldner then entered into a

consulting agreement with SAJ under which he received a $90,000 bonus for

negotiating the contract with Harvest Foods plus a commission on all SAJ sales to

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 third of the amounts to Capitol City Marketing (Pennington’s company) and to

Horizon Marketing (a consulting company McPherson formed for this purpose at

Pennington’s suggestion). After McPherson moved to Arizona, he continued to

receive checks from Oldner until he told Pennington he no longer wished to be

involved. SAJ’s president testified that Harvest Foods paid too much for its purchases 2

under this arrangement. 

3. The owner of a Harvest Foods supplier, Big R Ice, testified that his company

normally did not use food brokers or consultants. However, based on its understanding

that suppliers had to go through Oldner to get Harvest Foods business, Big R Ice

signed two consulting contracts with Oldner, one paying John E. Oldner and

Associates $50,000, and the other paying Oldner personally $25,000. The only service

Oldner provided was to negotiate a supply agreement with Harvest Foods. After

receiving payments from Big R Ice, Oldner sent checks to Capitol City Marketing

totaling $25,000, one-half the amount Big R Ice paid to John E. Oldner and Associates.
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4. Billy Armstrong negotiated a supply contract with Harvest Foods on behalf

of his client, Coleman Dairy. After ninety days, Coleman Dairy began paying

Armstrong a four percent monthly commission on all sales to Harvest Foods.

Armstrong sent a check to Capitol City Marketing for one-half of each monthly

payment, showing the payments on his books as “advertising and flowers.” 

Pennington deposited all the kickbacks 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 the

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 scheme to defraud in which use of the

mails was reasonably foreseeable. See United States v. Hildebrand, 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

artifice to defraud” in 18 U.S.C. § 1341 includes a scheme “to deprive another of the

intangible right of honest services.” 18 U.S.C. §1346. Though most “intangible

rights” mail fraud cases have involved corrupt public officials, we have held that the

plain language of § 1346 applies as well to schemes to violate a private sector

fiduciary’s duty to provide honest services 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

government’s mail fraud theory was that defendants’ kickback schemes deprived

Harvest Foods of its intangible right to the honest services of CEO Pennington. 

1. Pennington first argues the mail fraud indictment was legally insufficient

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 prohibits
Pennington argues the district court erred in instructing the jury that “scheme

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to defraud” 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.

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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

upheld “unless it is so defective that by no reasonable construction can it be said to

charge the offense for which the defendants were convicted.” United States v. Just, 74

F.3d 902, 904 (8th Cir. 1996) (quotation omitted). 

Pennington 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 specific words of the statute, so long as “by fair implication” it alleges an

offense recognized by law. United States v. Mallen, 843 F.2d 1096, 1102 (8th Cir.),

cert. denied, 488 U.S. 849 (1988). Here, the mail fraud counts alleged schemes to

defraud and cited 18 U.S.C. § 1341, the operative offense-declaring statute. The

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 sufficiently

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 is

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 Harvest

Foods of Pennington’s honest services, and because Harvest Foods in fact benefitted

from the contracts negotiated by consultant Oldner. We will overturn a jury verdict

only if no reasonable jury could have found the offense elements proved beyond a

reasonable doubt. See Hildebrand, 152 F.3d at 761.
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There was overwhelming evidence that Pennington received secret kickbacks

from Oldner and Armstrong from contractual payments they received as a result of

doing business with Harvest Foods and its suppliers. As a Harvest Foods corporate

officer, Pennington owed Harvest Foods a fiduciary duty of loyalty, including the duty

to disclose all material information. Yet he never disclosed these payments to anyone

at Harvest Foods; indeed, he concealed the payments by use of a sham corporation,

Capitol City Marketing. Pennington and Oldner correctly assert that, when dealing

with business transactions in the private sector, a mere breach of fiduciary or employee

duty may not be sufficient to deprive a client or corporation of “honest services” for

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

economic 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 circumstantial evidence. See United States

v. Blumeyer, 114 F.3d 758, 767 (8th Cir.), cert. denied, 118 S. Ct. 350 (1997). Here,

a reasonable jury could find that the scheme was intended to and did defraud Harvest

Foods by depriving it of Pennington’s honest services in obtaining the most

advantageous supply, brokerage, and consulting contracts that could be negotiated. 

Oldner argues he should be acquitted of aiding and abetting a scheme to defraud

because there was no proof he knew of Pennington’s duty to Harvest Foods. We

disagree. The jury could reasonably find that Oldner, an experienced businessman,

knew the secret kickbacks to Capitol City Marketing violated Pennington’s duty to

disclose material information to his employer. 

B. The Money Laundering Counts.
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Pennington and Oldner argue the evidence was insufficient to convict them of

money laundering in violation of 18 U.S.C. §1957, which requires proof they

knowingly engaged in a financial transaction involving the proceeds of a criminal

offense. They argue there was no proof Oldner’s payments to Pennington came from

the funds received from Harvest Foods, SAJ, and Big R Ice and were therefore the

proceeds of criminal fraud. This contention is without merit. The government need

not trace funds to prove a violation of § 1957. See United States v. Moore, 27 F.3d

969, 976-77 (4th Cir.), cert. denied, 513 U.S. 979 (1994). Here, the timing and

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 argues he cannot be convicted of aiding and abetting money laundering

because his involvement in the scheme ended with the mailing of checks to

Pennington. The district court correctly instructed that Oldner may be convicted of

aiding and abetting if he knew money laundering was being committed and

“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.2d

1256, 1261 (8 Cir. 1991). Oldner paid Pennington through a sham corporation,

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Capitol City Marketing. Oldner pretended the payments were for consulting work by

Pennington and provided Pennington with a tax Form 1099 to evidence this pretense.

Starting in May 1991, Oldner stopped sending checks directly to Capitol City

Marketing; instead, he wrote checks to his accountant and instructed him to purchase

cashier’s checks payable to Capitol City. A reasonable jury could find from this

evidence that Oldner knew Pennington violated § 1957 by routing fraud proceeds

through the Capitol City Marketing account, and that Oldner knowingly encouraged

and aided those violations. 

C. Oldner’s Obstruction of Justice.
We reject Oldner’s contention the district court erred in excluding testimony

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that Oldner heard his former attorney give advice similar to some of the things Oldner

told McPherson during the taped conversation. The district court did not abuse its

discretion in excluding this testimony as speculative. In any event, any error would be

harmless because the testimony did not undermine McPherson’s testimony that Oldner

told him to lie about their financial relations.

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In 1992, the government began investigating Oldner, Pennington and

McPherson. McPherson agreed to cooperate. In a taped conversation between Oldner

and McPherson, Oldner suggested McPherson tell the investigators that Oldner had

agreed to pay McPherson around $150,000 over two years for consulting work, but the

agreement was not completed because McPherson moved to Arizona. McPherson

testified at trial that he never performed any consulting work for Oldner. The jury

convicted Oldner 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 prevent 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 the

statute was amended to include tampering by corrupt persuasion. After carefully

examining 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 was

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
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II. Alleged Trial Errors.

Pennington 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 that

represented Pennington in a civil case, and the law firm was facing a potential

$6,000,000 malpractice suit by Pennington for causing his appeal from an adverse

judgment to be dismissed as untimely. Because Pennington failed to raise this issue

at trial, he must show “that an actual conflict of interest 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

not create an actual conflict of interest between Pennington and his counsel in the

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.

Pennington and Oldner argue the district court abused its discretion by not

declaring a mistrial when a juror reported that Pennington’s wife put a quarter in the

juror’s parking meter and smiled at her before the second day of the jury’s

deliberations. Like the district court, we reject Pennington’s contention because he

was present when his wife plugged the meter and therefore cannot benefit from any

misconduct. Oldner argues outside juror contact of this kind is presumptively

prejudicial under Remmer v. United States, 347 U.S. 227 (1954), and the jury may

have held Mrs. Pennington’s actions against him as well as Pennington. The

government argues the presumption of prejudice 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. 1172

(1996). Whether or not the presumption applies, we agree with the district court that

the contact between Mrs. Pennington and the juror did not prejudice Oldner. The

contact was short, it was explained by Pennington as a kind gesture his wife routinely
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does for others, and it did not involve a favor of sufficient magnitude to likely

influence a juror. Moreover, the contact occurred on the second day of deliberations,

and the jury’s dated verdict forms show they had returned guilty verdicts against

Oldner on all the mail fraud counts, one money laundering count, and the obstruction

of justice count the previous day. The district court did not abuse its discretion in

refusing to declare a mistrial. See United States v. Rhodenizer, 106 F.3d 222, 225 (8th

Cir. 1997) (standard of review). 

Pennington argues the district court erred by not excusing a Harvest Foods

employee from the jury when the new CEO of Harvest Foods, Harry Janson, testified

as a government rebuttal witness. Pennington waived this issue by not challenging the

juror when the jury was empaneled because the basis for the objection was then

known. 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. 

Pennington further argues the district court abused its discretion by allowing

McPherson to testify he had pleaded guilty to mail fraud as a result of participating in

the SAJ scheme. This argument is without merit. A confederate’s guilty plea is

admissible during the government’s direct examination as evidence of the witness’s

credibility and of his acknowledgment he participated in the offense. See United States

v. Hutchings, 751 F.2d 230, 237 (8th Cir. 1984), cert. denied, 474 U.S. 829 (1985).

Here, 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, the

district court properly began with the higher base offense level for money laundering.
Indeed, both Pennington and Oldner appear to have received a sentencing

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windfall when the district court improperly grouped their mail fraud and money

laundering 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.

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See U.S.S.G. §§ 2S1.2, 3D1.3(a); Hildebrand, 152 F.3d at 762. The money laundering

guideline adjusts the base offense level according to the value of the proceeds

laundered. See U.S.S.G. § 2S1.2(b)(2). Pennington argues the court erred in

aggregating the proceeds from his twelve money laundering counts of conviction in

determining the value of proceeds laundered. This contention is without merit. The

money laundering counts were properly grouped. See U.S.S.G. § 3D1.2(d); United

States v. O’Kane, 155 F.3d 969, 974 (8th Cir. 1998). The Guidelines expressly

provide that “the offense level applicable to a Group is the offense level corresponding

to the aggregated quantity.” U.S.S.G. § 3D1.3(b).5

Pennington next argues the district court erred in denying him a downward

departure because Harvest Foods received a $6,000,000 judgment in its civil fraud

action against him for the conduct at issue in the criminal case. The district court

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concluded that an adverse judgment in a prior civil case involving the same fraudulent

conduct is not a permissible basis to reduce the prison sentence for the criminal fraud.

We agree. The adverse civil judgment against Pennington is quite different from the

substantial, voluntary restitution that we held a permissible basis for downward

departure in United States v. Garlich, 951 F.2d 161, 163 (8th Cir. 1991). Like the

career 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 the

Sentencing Commission did not cite an adverse civil judgment as a mitigating factor

in sentencing for fraud in its lengthy Commentary to U.S.S.G. § 2F1.1, the very

detailed Guideline for fraud offenses. Instead, that Commentary, if anything, is to the
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contrary. See § 2F1.1, comment. (backg’d) (“[a] defendant who has been subject to

civil or administrative proceedings for the same or similar fraudulent conduct

demonstrates aggravated criminal intent and is deserving of additional punishment”).

This is strong evidence that an adverse civil judgment does not warrant a downward

departure 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 not

to grant a downward departure from Pennington’s Guidelines prison sentence. Of

course, the question whether satisfying such a civil judgment should be taken into

account in determining a criminal monetary penalty such as fine or restitution is not

before us, and we do not consider it.

Finally, Pennington argues the district court committed a double counting error

by adjusting his money laundering base offense level upward because he knew the

laundered monies were fraud proceeds. See U.S.S.G. § 2S1.2(b)(1)(B). This

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. Oldner. The district court granted Oldner a twenty-month downward

departure based upon a combination of factors -- because Pennington’s conduct

involved a much greater breach of trust yet his Guidelines range was the same,

Oldner’s health problems, and his need to support his mother. The government crossappeals this departure. Because the government did not object at sentencing, we

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 is

waived because it was not raised to the district court. See United States v. BarajasNunez, 91 F.3d 826, 830 (6th Cir. 1996). 

To succeed under plain error review, the government must show there was a

clear error affecting substantial rights that resulted in a miscarriage of justice. See
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United States v. Olano, 507 U.S. 725, 735-36 (1993). The government argues the

district court relied on an improper basis for the downward departure because

Pennington’s more serious breach of trust was accounted for in the Guidelines by his

two-level enhancement for abuse of trust. In concluding that Pennington’s and

Oldner’s comparable 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 the 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 the

district court, we conclude it does not entitle the government to plain error relief. The

government challenges one of the departure factors the district court expressly

considered in combination. We do not know whether the district court would have

agreed with that challenge and, if so, how it would have affected the court’s decision

to depart. In these circumstances, we conclude that this downward departure, like the

downward departure in United States v. Ragan, 952 F.2d 1049 (8th Cir. 1992), “did

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.