U.S. v. Pennington, s. 97-2847

Decision Date05 February 1999
Docket Number97-2888 and 97-3152,Nos. 97-2847,s. 97-2847
Citation168 F.3d 1060
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Donald B. PENNINGTON, Defendant-Appellant. United States of America, Plaintiff-Appellee/Cross-Appellant, v. John E. Oldner, Defendant-Appellant/Cross-Appellee.
CourtU.S. Court of Appeals — Eighth Circuit

Robert David Lewis, Little Rock, Arkansas, argued, for Appellant Pennington.

Omar F. Greene, Little Rock, Arkansas, argued, for Appellant Oldner.

Michael D. Johnson, Little Rock, Arkansas, argued (Paula J. Casey, United States Attorney, on the brief), for Appellee.

BEFORE: BEAM, LAY, and LOKEN, Circuit Judges.

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 1 sentenced 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 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. 2 SAJ's president testified that Harvest Foods paid too much for its purchases 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.

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, --- U.S. ----, 119 S.Ct. 575, 142 L.Ed.2d 479 (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, 520 U.S. 1273, 117 S.Ct. 2452, 138 L.Ed.2d 210 (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 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, 109 S.Ct. 130, 102 L.Ed.2d 103 (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.

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, 102 S.Ct. 1769, 72 L.Ed.2d 174 (1982); United States v. Von Barta, 635 F.2d 999, 1006 (2d Cir.1980), cert. denied, 450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981). The jury may infer intent from circumstantial evidence. See United States v. Blumeyer, 114 F.3d 758, 767 (8th Cir.), cert. denied, --- U.S. ----, 118 S.Ct. 350, 139 L.Ed.2d 272 (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...

To continue reading

Request your trial
50 cases
  • U.S. v. Welch, No. 01-4170.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 22 Abril 2003
    ...Martin, 228 F.3d 1, 17 (1st Cir.2000); United States v. deVegter, 198 F.3d 1324, 1327-28 (11th Cir. 1999); United States v. Pennington, 168 F.3d 1060, 1064 (8th Cir.1999); United States v. Sun-Diamond, 138 F.3d 961, 973 (D.C.Cir.1998); United States v. Frost, 125 F.3d 346, 365-66 (6th Cir. ......
  • U.S. v. Coffey, 04-CR-651(ILG).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • 29 Marzo 2005
    ...536 U.S. 922, 122 S.Ct. 2587, 153 L.Ed.2d 777 (2002); United States v. Martin, 228 F.3d 1, 17 (1st Cir.2000); United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir.1999); United States v. Sun-Diamond Growers of California, 138 F.3d 961, 973-74 (D.C.Cir.1998), aff'd in part, 526 U.S. 398......
  • United States v. Aossey, 14-CR-138-LRR
    • United States
    • United States District Courts. 8th Circuit. Northern District of Iowa
    • 25 Agosto 2015
    ...an offense recognized by law." United States v. Villarreal, 707 F.3d 942, 957 (8th Cir. 2013) (quoting United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir. 1999)) (internal quotation marks omitted). "[F]ederal criminal procedure does not 'provide for a pre-trial determination of suffi......
  • U.S. v. Rybicki
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • 29 Diciembre 2003
    ...to cause actual harm or injury, and in most business contexts, that means financial or economic harm." See United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir.1999). One circuit has held that, to secure an honest services conviction, "[t]he prosecution must prove that the employee int......
  • Request a trial to view additional results
19 books & journal articles
  • Mail and wire fraud.
    • United States
    • American Criminal Law Review Vol. 42 No. 2, March 2005
    • 22 Marzo 2005
    ...668 (10th Cir. 1997) (holding [section] 1346 requires showing of fraudulent intent and materiality); cf. United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir. 1999) (noting defendants must also cause or intend to cause actual harm or injury, which, in most business contexts, means fina......
  • Money laundering.
    • United States
    • American Criminal Law Review Vol. 44 No. 2, March 2007
    • 22 Marzo 2007
    ...v. Smith, 223 F.3d 554, 576 (7th Cir. 2000) (laundered funds need not be traced to specific transaction); United States v. Pennington, 168 F.3d 1060, 1066 (8th Cir. 1999) (Government need not trace funds to the fraud scheme; timing and amounts of payments permitted jury to infer that they w......
  • Mail and wire fraud.
    • United States
    • American Criminal Law Review Vol. 43 No. 2, March 2006
    • 22 Marzo 2006
    ...668 (10th Cir. 1997) (holding [section] 1346 requires showing of fraudulent intent and materiality); cf. United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir. 1999) (noting defendants must also cause or intend to cause actual harm or injury, which, in most business contexts, means fina......
  • Mail and wire fraud.
    • United States
    • American Criminal Law Review Vol. 44 No. 2, March 2007
    • 22 Marzo 2007
    ...668 (10th Cir. 1997) (holding [section] 1346 requires showing of fraudulent intent and materiality); cf. United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir. 1999) (noting defendants must also cause or intend to cause actual harm or injury, which, in most business contexts, means fina......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT