United States v. Vinyard ( 2001 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA, 
Plaintiff-Appellee,
v.  No. 00-4442
MICHAEL CHARLES VINYARD,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Florence.
Cameron McGowan Currie, District Judge.
(CR-99-429)
Argued: May 8, 2001
Decided: September 11, 2001
Before NIEMEYER, WILLIAMS, and KING, Circuit Judges.
Affirmed by published opinion. Judge King wrote the opinion, in
which Judge Niemeyer and Judge Williams joined.
COUNSEL
ARGUED: Robert Eugene Breckenridge, II, JOHNSON, HESTER,
WALTER & BRECKENRIDGE, L.L.P., Ottumwa, Iowa, for Appel-
lant. Thomas Ernest Booth, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee. ON BRIEF: J. Rene
Josey, United States Attorney, Alfred W. Bethea, Jr., Assistant United
States Attorney, District of South Carolina, for Appellee.
2 UNITED STATES v. VINYARD
OPINION
KING, Circuit Judge:
Michael Vinyard was convicted by a jury in the District of South
Carolina of fourteen counts of mail fraud and twelve counts of money
laundering. He was sentenced to seventy months imprisonment, fol-
lowed by three years of supervised release, and ordered to pay restitu-
tion in a sum exceeding $1.4 million. In his appeal, Vinyard
challenges the validity of his convictions and sentence. For the rea-
sons explained below, we affirm.
I.
Michael Vinyard ("Michael"), a practicing attorney in Iowa, was
invited by his brother, James Vinyard ("James"), in the fall of 1990,
to enter into a joint business venture. At that time, James was
employed in South Carolina by the Sonoco Products Corporation
("Sonoco"). Sonoco’s high density film products division, which
manufactures plastic grocery bags, had decided to explore opportuni-
ties to use recycled materials, and had installed James as Recycling
Manager. Believing that it would be most efficient to handle Sonoco’s
recycling efforts internally, James actively campaigned to form a new
recycling division within the company, which he proposed to head.
Sonoco, however, did not want the industry or consumers to know
that it was using scrap or recycled materials, and instead it directed
James to employ an independent broker to research potential sources
of recycled resins and to negotiate deals for Sonoco on a confidential
basis. Rather than locate such a broker, James devised a more person-
ally lucrative solution: the creation of his own brokerage. James
enlisted the services of his brother, Michael, and together they created
the entity Charles Stewart Enterprises ("CSE"). CSE was incorporated
in the State of Iowa, with the incorporation documents naming
Michael’s law partner as the incorporator and President.
James took charge of CSE’s operations from its inception, while
administrative matters were relegated to Michael. Michael’s responsi-
bilities consisted chiefly of providing CSE with office space in his
law firm, arranging the installation of separate phone and fax lines,
UNITED STATES v. VINYARD 3
1
and retaining secretarial and accounting services. Under James’s
direction, CSE presented itself to Sonoco and plastic vendors as an
independent broker; it purchased recycled resins from various vendors
and sold them to Sonoco, collecting a commission on each sale.
Sonoco was led to believe that Charles Stewart was an actual person
at CSE and also that CSE was a legitimate broker of recycled plastic
pellets that could provide such pellets at the lowest possible price. In
addition to its brokering operations, CSE became involved in the
enterprise of collecting used grocery bags from Sonoco customers and
selling them for an unlawful commission (i.e., a kickback) to compa-
nies that would reuse or recycle them. Between 1991 and 1997,
Sonoco paid CSE over $12 million, yielding the brokerage a net profit
of more than $2.8 million.
In carrying out the fraud scheme, James consistently misrepre-
sented the relationship between CSE and Sonoco. He advised outside
vendors that CSE had been established to protect Sonoco’s confiden-
tiality, with Sonoco’s full knowledge. Similarly, CSE employees
Brenda Westvold and Martha Harrison were told that Sonoco was
aware of James’s involvement in CSE, but they were warned not to
disclose the Vinyard name to others. Both James and Michael fun-
neled their CSE earnings through another entity, Birchwood Enter-
prises, so that there would be no mention of CSE on their income tax
returns.
In April 1997, a disgruntled CSE client informed Sonoco of
James’s practice of exacting unlawful commissions in the resale of
used Sonoco bags. An investigation followed, leading to the discov-
ery of James and Michael’s CSE operation and the issuance, on May
15, 1999, of an indictment charging Michael Vinyard with multiple
counts of mail fraud and money laundering.2 More specifically, the
1
Initially, CSE’s clerical work was performed by secretaries in
Michael’s law office. This arrangement proved awkward, however, and
Michael fired one of the secretaries, Beverly Wells, after she objected to
working on CSE matters. Eventually Michael hired office managers to
handle CSE’s administrative/accounting tasks, such as preparing
invoices, receiving payments for materials, paying suppliers, and prepar-
ing CSE’s tax returns.
2
Michael Vinyard was indicted for mail fraud, in violation of 18
U.S.C. §§ 1341 and 1346, as well as § 2 (aiding and abetting). Under the
4 UNITED STATES v. VINYARD
indictment charged that Michael "knowingly and willfully did devise
and intend to devise a scheme and artifice to defraud Sonoco . . . out
of (1) the intangible right of honest services of its employee, James
Stewart Vinyard, and (2) out of money and property[.]" J.A. 14. The
indictment also alleged that Michael had established CSE in coopera-
tion with James, and that they had utilized CSE to overcharge Sonoco
for recycled plastic pellets, "keeping the amount of the ‘mark up’ for
themselves." J.A. 15. Additionally, the indictment alleged that
Michael and James caused Sonoco to pay substantial fees to them in
connection with its grocery bag collection program, even though
James bore a preexisting duty to handle the recycling program in his
capacity as a Sonoco employee.
In response to the threat of prosecution for mail fraud and money
laundering, James pleaded guilty, cooperated with the Government,
and testified against Michael. Following a jury trial in August 1999,
Michael was convicted of fourteen counts of mail fraud and twelve
counts of money laundering. Michael was sentenced to seventy
primary mail fraud statute, 18 U.S.C. § 1341 (2000):
Whoever, having devised or intending to devise any scheme or
artifice to defraud, or for obtaining money or property by means
of false or fraudulent pretenses, representations, or promises . . .
for the purpose of executing such scheme or artifice or attempt-
ing so to do, places in any post office or authorized depository
for mail matter, any matter or thing whatever to be sent or deliv-
ered by the Postal Service . . . shall be fined . . . or imprisoned
. . . or both.
The provisions of § 1341 are modified and supplemented by the honest
services doctrine, codified in 18 U.S.C. § 1346 (2000), in the following
manner:
[T]he term "scheme or artifice to defraud" [in chapter 18]
includes a scheme or artifice to deprive another of the intangible
right of honest services.
Michael was also indicted for money laundering, that is, for knowingly
conducting financial transactions "designed in whole or in part to conceal
and disguise the nature, the location, the source, the ownership, or the
control of the proceeds" of the fraud, in violation of 18 U.S.C.
§ 1956(a)(1)(B)(i) and § 2.
UNITED STATES v. VINYARD 5
months imprisonment, ordered to pay $1,418,419.65 in restitution,
and directed to serve three years of supervised release. He timely filed
this appeal, and we possess jurisdiction pursuant to 28 U.S.C. § 1291.
II.
Michael Vinyard assigns multiple errors to the proceedings in the
district court. First, and most fundamentally, he challenges the appli-
cability of the federal mail fraud statute to his case. Michael asserts
that his conduct cannot violate 18 U.S.C. §§ 1341 and 1346, because
he neither intended to cause economic harm, nor caused actual eco-
nomic harm, to Sonoco. Although Michael contends that he is chal-
lenging the district court’s denial of his motion to dismiss the mail
fraud charges, his argument more substantively constitutes a chal-
lenge to the denial of his motion for judgment of acquittal. See Fed.
R. Crim. P. 29. In any event, the specific ruling he is contesting is not
controlling, because we would affirm the district court in both situa-
tions.
We review challenges to the sufficiency of an indictment de novo,
and we review the denial of a motion for judgment of acquittal for
whether, when viewed most favorably to the Government, there is
sufficient evidence to sustain a conviction on the charge in question.
United States v. Butler, 211 F.3d 826, 829 (4th Cir. 2000); United
States v. Darby, 37 F.3d 1059, 1062 (4th Cir. 1994); see also United
States v. Glasser, 315 U.S. 60, 80 (1942) ("It is not for us to weigh
the evidence or determine the credibility of witnesses. The verdict of
the jury must be sustained if there is substantial evidence, taking the
view most favorable to the Government, to support it.").
Second, Michael asserts that he was denied a fair trial because of
prosecutorial misconduct. Specifically, he posits that the prosecution
suppressed material, exculpatory evidence in violation of Brady v.
Maryland, 373 U.S. 83 (1963), and that the prosecution made use of
evidence at trial that the prosecutor had agreed would not be presented.3
3
Although Michael characterizes these claims as prosecutorial miscon-
duct, Government misconduct is not necessary for a Brady violation. As
we noted in Spicer v. Roxbury Correctional Institute, inadvertent failures
by the state to turn over material evidence favorable to the defendant can
also be the basis of a Brady claim. 194 F.3d 547, 555 (4th Cir. 1999).
6 UNITED STATES v. VINYARD
Because Michael failed to raise either of these issues in the district
court, we review these contentions for plain error. See Fed. R. Crim.
P. 52(b); United States v. Fisher, 58 F.3d 96, 100 (4th Cir. 1995). To
meet the standard of review for plain error, Michael must demonstrate
to us that there was (1) an error, (2) that it was plain, and (3) that it
affected substantial rights. United States v. Olano, 507 U.S. 725, 732
(1993)(construing the requirements of Fed. R. Crim. P. 52(b)). Fur-
thermore, the correction of plain error lies within the discretion of this
Court, and is not to be exercised "unless the error ‘seriously affect[s]
the fairness, integrity, or public reputation of judicial proceedings.’"
Id. (quoting United States v. Young, 470 U.S. 1, 15 (1985)).
Third, Michael contends that his sentence violated the Sentencing
Guidelines because the district court misapplied the Guidelines’ loss
enhancement provisions. When addressing an application of the
Guidelines, we review the district court’s "factual findings for clear
error and legal interpretations de novo." United States v. Colton, 231
F.3d 890, 911 (4th Cir. 2000).
Fourth, Michael contests the validity of the district court’s order of
restitution. Although he does not challenge the magnitude of the resti-
tution award, Michael asserts that the payment schedule developed by
the court did not properly consider his financial status and prospects
as required by the Mandatory Victims Restitution Act of 1996
(MVRA). We review a district court’s order on restitution for an
abuse of discretion. United States v. Henoud, 81 F.3d 484, 487 (4th
Cir. 1996).
Fifth, Michael contends that he was denied a fair trial due to inef-
fective assistance being rendered by his counsel. Such claims are
reviewed on direct appeal "if and only if it conclusively appears from
the record that his attorney did not provide effective assistance."
United States v. Martinez, 136 F.3d 972, 979 (4th Cir. 1998); United
States v. Smith, 62 F.3d 641, 651 (4th Cir. 1995). Ineffective counsel
claims receive de novo review, and they may result in relief for the
defendant only if (1) the errors made by defense counsel were so seri-
ous that the representation fell below objective standards of reason-
ableness, and (2) defense counsel’s performance prejudiced the
defense. Strickland v. Washington, 466 U.S. 668, 687-88 (1984).
UNITED STATES v. VINYARD 7
We address these claims of error in turn.
III.
A.
1.
Michael contends that his indictment was invalid with respect to
the mail fraud charges because the Government failed to allege and
prove the elements required for a deprivation of honest services under
§§ 1341 and 1346. More specifically, Michael asserts that actual eco-
nomic harm to the employer is a necessary element of this crime in
the private employment context, and that the Government failed to
demonstrate that Sonoco had suffered actual economic harm as a
result of Michael and James’s fraudulent conduct.
Michael’s assertion on this point misapprehends the requirements
for an indictment. A valid indictment must "contain the elements of
the offense charged, fairly inform a defendant of the charge, and
enable the defendant to plead double jeopardy as a defense in a future
prosecution for the same offense." United States v. Daniels, 973 F.2d
272, 274 (4th Cir. 1992); see also Fed. R. Crim. P. 7(c)(1). In addi-
tion, we have held that "[e]very essential element of an offense must
be charged in the body of an indictment, and the inclusion of a refer-
ence to the statute will not cure the failure to do so." Daniels, 973
F.2d at 274. The sufficiency of an indictment turns on whether the
grand jury has found and alleged all the elements of the offense
charged as required by the "Fifth Amendment guarantee that no per-
son be held to answer for an infamous crime unless on indictment of
a grand jury." Id. (quoting United States v. Pupo, 841 F.2d 1235,
1239 (4th Cir. 1988)). A mere statutory citation in the indictment is
insufficient precisely because it does not demonstrate whether that
Fifth Amendment mandate has been followed. Id.
The mail fraud statute makes it criminal to devise or intend to
devise "any scheme or artifice to defraud, or for obtaining money or
property by means of false or fraudulent pretenses, representations, or
promises." 18 U.S.C. § 1341 (2000). We have observed that the ele-
8 UNITED STATES v. VINYARD
ments of mail fraud are "(1) the existence of a scheme to defraud, and
(2) the mailing of a letter, etc., for the purposes of executing the
scheme." United States v. United Med. & Surgical Supply Corp., 989
F.2d 1390, 1404 (4th Cir. 1993) (quoting United States v. Murr, 681
F.2d 246, 248 (4th Cir. 1982)). In codifying the "honest services"
doctrine in 1988, as embodied in 18 U.S.C. § 1346 (2000), Congress
made it clear that "the term ‘scheme or artifice to defraud’ includes
a scheme or artifice to deprive another of the intangible right of hon-
est services."4 Thus, the elements of a mail fraud scheme involving
the deprivation of honest services are identical to those of a normal
mail fraud prosecution. Although judicial interpretation of the "honest
services" doctrine has somewhat limited its scope in the private
employment context, see infra Part III.A.2.a., those limitations have
not altered the essential elements of the mail fraud offense that must
be alleged in the indictment. Michael’s indictment alleged that (1)
Michael and James had developed a scheme to defraud Sonoco by
overcharging it for plastic pellets and by setting up a sham brokerage
to pocket commissions on the recycling program, and (2) that Michael
and James had used the mails in the furtherance of that scheme. This
indictment therefore complied with the statutory and constitutional
requirements, and the district court’s denial of Michael’s motion to
dismiss was entirely proper.
2.
a.
To the extent that Michael contends that the district court’s denial
of his motion for judgment of acquittal was error, we are similarly
unpersuaded. Although the honest services theory of mail fraud is
4
Prior to the Supreme Court’s decision in McNally v. United States,
483 U.S. 350 (1987), the mail fraud statute had been consistently inter-
preted to include fraud involving the deprivation of honest services. In
McNally, however, the Court held that schemes to deprive citizens of
their rights to honest government did not fall within the scope of the mail
fraud statute. McNally, 483 U.S. at 358-61. Congress thereafter enacted
§ 1346 to "restore the mail fraud statute to its pre-McNally position by
allowing mail fraud convictions to be predicated on deprivations of hon-
est services." United States v. Gray, 96 F.3d 769, 774 n.8 (5th Cir. 1996).
UNITED STATES v. VINYARD 9
directed primarily at the deterrence and punishment of corruption
among public officials, the courts have consistently recognized the
statute’s province to encompass dishonest acts perpetrated in private
commercial settings. See United States v. Martin, 228 F.3d 1, 17 (1st
Cir. 2000) (reviewing the evolution and application of the mail fraud
statute). This recognition of liability within the private sector compre-
hends that a corporate officer or other private employee may bear a
duty of loyalty to his employer, just as a public official owes the citi-
zenry a duty to govern honestly and impartially.
As Michael recognizes, the scope of criminal liability deriving
from employer-employee relationships lacks precise definition. The
plain language of the "honest services" doctrine codified in § 1346
suggests that "dishonesty by an employee, standing alone, is a crime."
United States v. Frost, 125 F.3d 346, 368 (6th Cir. 1997). Under such
an application of the statute, Michael’s conduct is clearly within the
scope of § 1346. This construction, however, potentially extends
criminal liability to a broad range of employment contexts, and courts
generally have been reluctant to apply § 1346 in a way that would
expose employees to mail fraud prosecution for "every breach of con-
tract or every misstatement made in the course of dealing." United
States v. Cochran, 109 F.3d 660, 667 (10th Cir. 1997). Therefore,
courts construing and applying § 1346 have consistently utilized cer-
tain principles to limit its scope in the private employment context.
See, e.g., Martin, 228 F.3d at 17 (merely examining confidential
information for employee’s own purposes in breach of fiduciary duty
is insufficient for § 1346 liability, but using confidential information
for employee’s own purposes in a way that harms tangible employer
interests is sufficient); United States v. deVegter, 198 F.3d 1324,
1328-29 (11th Cir. 1999) ("[T]he breach of loyalty by a private sector
defendant must in each case contravene — by inherently harming —
the purpose of the parties’ relationship."); United States v. Penning-
ton, 168 F.3d 1060, 1065 (8th Cir. 1998) ("[T]o 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 eco-
nomic harm."); United States v. Sun-Diamond Growers of California,
138 F.3d 961, 973 (D.C. Cir. 1998) ("[T]here must be a failure to dis-
close something which in the knowledge or contemplation of the
employee poses an independent business risk to the employer.")
(quoting United States v. Lemire, 720 F.2d 1327, 1337 (D.C. Cir.
10 UNITED STATES v. VINYARD
1983)); Frost, 125 F.3d at 369 ("[T]he prosecution must prove . . .
that the defendant intended to breach his fiduciary duty, and reason-
ably should have foreseen that the breach would create an identifiable
economic risk to the victim."); Cochran, 109 F.3d at 667 ("We
[acknowledge] . . . that § 1346 must be read against a backdrop of the
mail and wire fraud statutes, thereby requiring fraudulent intent and
a showing of materiality."); United States v. Gray, 96 F.3d 769, 775
(5th Cir. 1996)("[A] breach of fiduciary duty can constitute illegal
fraud . . . only when there is some detriment to the employer.") (quot-
ing United States v. Ballard, 663 F.2d 534, 540 (5th Cir. 1981)).
We have not heretofore addressed the reach of the honest services
doctrine in the private employment context; our sister circuits, how-
ever, have split over the proper approach. On the one hand, several
circuits have held that the Government "must prove that the employee
intended to breach a fiduciary duty, and that the employee foresaw or
reasonably should have foreseen that his employer might suffer an
economic harm as a result of the breach." (the "‘reasonably foresee-
able harm’ test"). Frost, 125 F.3d at 368; see also Martin, 228 F.3d
at 17; deVegter, 198 F.3d at 1328-30; Sun-Diamond Growers, 138
F.3d at 973-74; Lemire, 720 F.2d at 1337 ("The crucial determination
must be whether [a] jury could infer that the defendant might have
reasonably contemplated some concrete business harm to his
employer stemming from his failure to disclose the conflict along
with any other information relevant to the transaction."). On the other
hand, some circuits have construed the honest services doctrine
merely to require a showing that the employee possessed a fraudulent
intent and that the misrepresentation at issue was material. (the "mate-
riality test"). Cochran, 109 F.3d at 667; see also Pennington, 168
F.3d at 1065; Gray, 96 F.3d at 774-75.5 Courts that prefer the materi-
ality test have defined materiality as "any misrepresentation that has
5
The Second and Eighth Circuits have also held that an employee does
not need to breach a fiduciary duty to his employer to violate § 1346. See
United States v. Ervasti, 201 F.3d 1029, 1036 (8th Cir. 2000); United
States v. Sancho, 157 F.3d 918, 920 (2d Cir. 1998). In this case, how-
ever, construing the evidence in the light most favorable to the Govern-
ment, James breached his fiduciary duty to Sonoco. Therefore we need
not reach the issue of whether a breach of fiduciary duty is necessary for
a successful § 1346 prosecution.
UNITED STATES v. VINYARD 11
the natural tendency to influence or is capable of influencing" the
employer to change his behavior. Cochran, 109 F.3d at 667-68 n.3;
see also Gray, 96 F.3d at 775 ("Materiality exists whenever ‘an
employee has reason to believe that the information would lead a rea-
sonable employer to change its business conduct.’") (quoting United
States v. Ballard, 663 F.2d 534, 540 (5th Cir. 1981)).6
The two tests (the reasonably foreseeable harm test and the materi-
ality test) are similar in many respects. We are persuaded, however,
that the reasonably foreseeable harm test, as adopted and explained
by the Sixth Circuit in its Frost decision, is the better approach. We
reach this conclusion for two important reasons.7
First, the reasonably foreseeable harm test keeps the focus of the
analysis on employee intent rather than on employer response. As we
have noted, courts have generally viewed the honest services doctrine
as not encompassing all breaches of legal duties in the private
employment context; they have instead limited its application to par-
ticularly significant breaches of such duties. The central question,
therefore, is whether the severity of the employee’s fraudulent con-
duct is sufficient to prove a deprivation of honest services. While an
employer may overreact to an insignificant fraud or underreact to a
significant one, the employer’s response should not affect whether the
employee can be prosecuted under § 1346. By framing the test in
terms of whether the employee met the threshold level of intent, the
6
The issue of which test constitutes the proper approach was not
briefed or argued by the parties, nor addressed by the district court. How-
ever, the scope of the honest services doctrine was raised both at trial and
on appeal by Michael, and his challenge to the denial of judgment of
acquittal requires us to examine whether sufficient evidence was pres-
ented to support the verdict under the requirements of § 1346. Accord-
ingly, our review of the judgment of conviction requires that we address
the proper construction of the honest services doctrine in the private
employment context.
7
For the most part, application of the materiality approach will be iden-
tical to the reasonably foreseeable harm test, because an employer would
almost certainly alter his business practices if disclosure of a fraud
scheme revealed either foregone business opportunities or an economic
threat. Frost, 125 F.3d at 369.
12 UNITED STATES v. VINYARD
Frost approach keeps the focus of the § 1346 charge on the fraud, not
the employer response. Frost, 125 F.3d at 368 ("The standard we
adopt for this circuit properly focuses on the intent of the
employee.").
Second, in a similar vein, the reasonably foreseeable harm test is
also superior to the materiality test because it does not extend § 1346
liability to circumstances in which employers change their business
practices to avoid the mere appearance of impropriety. See id. at 369
(contending that appearance of impropriety may provoke change even
though fraud in question never constituted economic threat). Because
even trivial frauds might provoke a change in business practices,
bringing such a situation within the scope of § 1346 would potentially
criminalize any breach of a duty of loyalty in the private employment
context. See id. Therefore, because it both keeps the focus on
employee intent and because it limits the scope of § 1346 to serious
harms, we prefer the Frost standard, i.e., the reasonably foreseeable
harm test.
b.
We next turn to the question of whether the reasonably foreseeable
harm test requires proof of actual economic harm in order to establish
criminal liability. In this regard, Michael contends on appeal that his
indictment for mail fraud should have been dismissed because Sonoco
suffered no economic harm as a result of the alleged self-dealing. In
the context of private business relationships, Michael asserts, the hon-
est services theory of mail fraud requires either an intent to cause
pecuniary harm to the victim or actual pecuniary harm to the victim;
self-dealing alone, according to Michael, does not satisfy the require-
ments of § 1346. Michael insists that the transactions between Sonoco
and CSE were fair, even beneficial, to both parties, and therefore
asserts that the economic loss requirement of § 1346 has not been
met.
Michael’s contention on this point reveals a misunderstanding of
§ 1346. The reasonably foreseeable harm test neither requires an
actual economic loss nor an intent to economically harm the
employer. See Sun-Diamond Growers, 138 F.3d at 974 ("Sun-
Diamond appears to confuse the requirement of an intent to defraud
UNITED STATES v. VINYARD 13
. . . with a requirement of intent to cause economic harm."). Under
this test, the employee need only intend to breach his fiduciary duty
and reasonably foresee that the breach would create "an identifiable
economic risk" for the employer. Frost, 125 F.3d at 369; see also
Martin, 228 F.3d at 17; Sun-Diamond Growers, 138 F.3d at 973;
Lemire, 720 F.2d at 1337 ("There must be a failure to disclose some-
thing which in the knowledge or contemplation of the employee poses
an independent business risk to the employer."). Thus, the reasonably
foreseeable harm test is met whenever, at the time of the fraud
scheme, the employee could foresee that the scheme potentially might
be detrimental to the employer’s economic well-being. Furthermore,
the concept of "economic risk" embraces the idea of risk to future
opportunities for savings or profit; the focus on the employer’s well-
being encompasses both the long-term and the short-term health of
the business. See Frost, 125 F.3d at 369; Lemire, 720 F.2d at 1338.
Whether the risk materializes or not is irrelevant; the point is that the
employee has no right to endanger the employer’s financial health or
jeopardize the employer’s long-term prospects through self-dealing.
Therefore, so long as the employee could have reasonably foreseen
the risk to which he was exposing the employer, the requirements of
§ 1346 will have been met. But see Martin, 228 F.3d at 17 n.22 (con-
cluding that § 1346 is satisfied by a showing of actual harm to "tangi-
ble interests").
Thus, in analyzing the propriety of the district court’s denial of
Michael’s motion for judgment of acquittal, we must assess whether
there was sufficient evidence for the jury to find that Michael will-
ingly aided and participated in the breach of a fiduciary duty by
James, and that he could reasonably foresee that the breach would
create an identifiable economic risk to Sonoco. The answer to both
questions is in the affirmative. James testified at length about his duty
of loyalty to Sonoco, including his contractual duty to disclose poten-
tial conflicts of interest.8 James created the entity CSE which received
8
As shown at trial, James had executed an employment agreement on
June 16, 1986, in which he promised, inter alia, to "disclose in writing
to the company any ideas which [he had] conceived or may have con-
ceived . . . during the term of [his] employment with the company relat-
ing to any business or interests of the company, whether conceived or
made during working hours or otherwise, and whether alone or jointly
14 UNITED STATES v. VINYARD
over $12 million in revenues from Sonoco, yielding more than $2.8
million in profits, but he acknowledged at Michael’s trial that he
never disclosed his involvement with CSE to Sonoco and, in fact, that
he had deliberately obscured it. James also testified that he had
informed his brother, before incorporating CSE, that "if Sonoco ever
found out about this, [he (James)] would get fired." J.A. 637. There
was sufficient evidence for the jury to conclude that Michael was
involved in, and willingly assisted in, his brother’s fraud scheme to
breach his duty of loyalty to Sonoco.
We also see the evidence as sufficient for the jury to conclude that
the fraud scheme exposed Sonoco to a reasonably foreseeable eco-
nomic risk. Regardless of whether the transactions between CSE and
Sonoco were objectively fair, there is no doubt that Michael and
James’s deception deprived Sonoco of the chance to consider a vari-
ety of brokers and to search for the best possible price. Such conduct
violates the honest services doctrine embodied in § 1346, in that it
creates a clear risk that the employer will receive, in terms of price
and quality of work, suboptimal service. See deVegter, 198 F.3d at
1331 (holding that corrupting process by which contracting was done
constitutes reasonably foreseeable risk of economic harm because
best service might not be obtained). Although James and Michael
may have provided the optimal broker service to Sonoco, it is also
possible that they did not, and the possibility of a suboptimal outcome
was reasonably foreseeable to Michael and James at the time they
defrauded Sonoco. As such, there was ample evidence for the jury to
find that Michael knowingly assisted James’s breach of his fiduciary
duty, and that Michael should have reasonably foreseen that such a
breach would expose Sonoco to an identifiable economic risk. We
must therefore affirm the denial of Michael’s motion for judgment of
acquittal.
with others." J.A. 633. When questioned about how he understood his
obligations to the company as a Sonoco employee, James acknowledged,
"[E]verything I did belonged to Sonoco from that standpoint. My duties
were to Sonoco." Id. at 632.
 UNITED STATES v. VINYARD 15
Barb.
1.
Michael also contends on appeal that two specific instances of pro-
secutorial misconduct denied him a fair trial. He first asserts that, in
connection with his trial, the Government suppressed a three-page
sentencing memorandum in violation of Brady v. Maryland, 373 U.S.
83 (1963).9 This memorandum had been submitted to the court during
James’s sentencing hearing, and contained "numerous statements [by
James] which were substantially different from the testimony [James]
gave at [the] trial of Michael Vinyard." Appellant’s Brief at 20.
Michael and his lawyer both attended James’s sentencing hearing, and
they requested the production of other evidence concerning James’s
testimony from the prosecutor. Significantly, they made no request
for the sentencing memorandum. At his sentencing hearing, Michael
informed the district court that he had not received a copy of the sen-
tencing memorandum, and he requested that a copy be placed into
evidence. At that point, however, Michael made no assertion to the
court either (1) that the Government had suppressed the memorandum
or (2) that his failure to receive it earlier constituted a violation of his
due process rights.
There are "[t]hree ‘essential components’ [to] a Brady violation
. . . : (1) the evidence must be favorable to the defendant, whether
directly exculpatory or of impeachment value; (2) it must have been
suppressed by the state, whether willfully or inadvertently; and (3) it
must be material." Spicer v. Roxbury Corr. Inst., 194 F.3d 547, 555
(4th Cir. 1999) (citing Strickler v. Greene, 527 U.S. 263, 281-82
(1999)). Under the circumstances here, it is unclear whether any error,
much less a plain error, occurred. We need not specifically reach that
issue, however, because Michael has failed to show that his lack of
access to James’s sentencing memorandum in any way altered the
outcome of the district court proceedings. See United States v. Olano,
507 U.S. 725, 734 (1993) (defining "affecting substantial rights" as
"in most cases mean[ing] that the error must have been prejudicial:
It must have affected the outcome of the district court proceedings").
9
As we noted previously, Brady violations do not constitute prosecu-
torial misconduct per se. See supra note 3.
16 UNITED STATES v. VINYARD
Although we could speculate that the memorandum might have
enhanced Michael’s efforts to impeach James’s testimony, it is
unlikely that it would have altered the trial’s result; even with the
memorandum, the jury would likely have credited James’s trial testi-
mony. Thus, Michael has failed to demonstrate plain error with
respect to his Brady claim.
2.
Michael is also unable to demonstrate plain error in his claim that
the Government solicited certain damaging testimony from two for-
mer employees of CSE, Bonnie Essary and Beverly Wells, after the
Government had assured the district court and Michael’s counsel that
the witnesses would refrain from such testimony. Essary and Wells
had worked in Michael’s law office and each, for a time, had been
assigned to work on CSE matters. Both women objected to working
on CSE and were removed from CSE matters; Essary was reassigned
and Wells was fired. Each received a payment from Michael, Essary
as part of a Christmas bonus and Wells as severance pay, that
appeared to be disproportionately large, and both women believed the
payment to be "hush money" to prevent them from talking about
CSE’s activities. Michael moved in limine "for an Order directing the
Government not to solicit speculative testimony" from these wit-
nesses, but later withdrew the motion, apparently satisfied that the
Government would not solicit such testimony. Wells then testified at
trial that she believed that the severance payment made to her consti-
tuted "hush money" designed to ensure her silence on CSE matters,
and Essary also testified that Wells had conveyed a similar belief to
her at the time Wells was fired.
The trial testimony of Essary and Wells concerning "hush money"
was only a small portion of their overall testimony on CSE, and was
even a smaller portion of the Government’s evidence against Michael.
As such, Michael has failed to demonstrate that the admission of this
evidence affected the outcome of his trial. Moreover, Michael is
unable to demonstrate that the testimony in question was erroneously
admitted. Ms. Wells’s opinion or perception of what the abnormally
large severance payment represented was entirely relevant, and it does
not appear to have been inadmissible on other grounds. See Fed. R.
Evid. 701 ("If the witness is not testifying as an expert, the witness’
UNITED STATES v. VINYARD 17
testimony in the form of opinions or inferences is limited to those
opinions or inferences which are (a) rationally based on the percep-
tion of the witness, (b) helpful to a clear understanding of the witness’
testimony or the determination of a fact in issue, and (c) not based on
scientific, technical, or other specialized knowledge."). As there was
no objection to this evidence made at trial, any error was waived;
regardless, we are unable to see its admission as error, plain or other-
wise.
C.
Michael also contends that his sentence violated the Sentencing
Guidelines because the district court inappropriately applied the loss
enhancement provisions of U.S.S.G. § 2F1.1(b)(1). Specifically,
Michael asserts that the court used gain as a proxy for loss in calculat-
ing his sentence, and that such usage is barred in cases in which there
was "no actual or intended loss to the victims." Appellant’s Brief at
30 (quoting United States v. Chatterji, 46 F.3d 1336, 1340 (4th Cir.
1995)). Michael posits that there was no loss, because Sonoco
received the services for which it bargained in its dealings with CSE
and turned a profit on its recycling venture, and therefore the
enhancement of his sentence under the loss enhancement provisions
was improper.
We must disagree with Michael’s contentions concerning his sen-
tence. Although he is correct that "gain . . . does not support a loss
enhancement under § 2F1.1(b)(1) if there was no actual, probable, or
intended loss to the victims," Michael misunderstands the meaning of
"loss" in this context. United States v. Marcus, 82 F.3d 606, 608 (4th
Cir. 1996). His argument is that "loss" under 2F1.1(b)(1) should be
judged by whether the defrauded party suffered an absolute economic
loss on the transaction; if the transaction was profitable, then loss
enhancement provisions are not applied. However, the relevant ques-
tion is not whether the victim lost money on the transaction, but
whether the victim was deprived of assets or services it would have
possessed absent the fraud. See Marcus, 82 F.3d at 608 ("A determi-
nation of the amount of loss suffered focuses, as it does in theft cases,
on the value of the money, property, or services unlawfully taken.")
(quoting U.S.S.G. § 2F1.1(b)(1), comment (n.7)). The issue of "loss"
therefore turns on how much Sonoco paid for the broker services of
18 UNITED STATES v. VINYARD
CSE versus how much it would have paid for those services absent
Michael and James’s fraud scheme. With respect to these determina-
tions, we must accord deference to the district court, and we review
its findings only for clear error. See United States v. Colton, 231 F.3d
890, 911 (4th Cir. 2000). In this instance, the district court found that
if James had disclosed his capacity to handle the recycling operation,
Sonoco would have quickly brought the vast majority of the services
in-house. The court therefore concluded that the profit earned by CSE
in its dealings with Sonoco constituted the excess amount Sonoco
paid as a result of the fraud scheme. Such findings are not clearly
erroneous, and we must reject Michael’s contention on this point.
D.
Michael also challenges the schedule for restitution payments
arranged by the district court. The court ordered Michael to pay
$1,418,419.65 in restitution and, after finding that his net worth was
$683,700, directed Michael to pay the outstanding balance at the rate
of $5,000 per month, beginning thirty days after his release from
prison. Although not disputing the magnitude of the restitution award,
Michael contends that the court did not adequately consider his finan-
cial status and earning potential, as required by the MVRA, in struc-
turing his restitution payments, and that it consequently created and
imposed an unrealistic payment schedule.
In formulating the manner in which restitution is to be paid, the
district court "is required [under MVRA] to consider: (1) the financial
resources of the defendant . . . ; (2) projected earnings and other
income of the defendant; and (3) any financial obligations of the
defendant, including obligations to dependents." United States v.
Alalade, 204 F.3d 536, 539 (4th Cir. 2000); see also 18 U.S.C.
§ 3664(f)(2). Although a restitution order that requires Michael to pay
$60,000 a year in restitution may seem excessive for a sixty-two year
old lawyer convicted of mail fraud, the court made substantial find-
ings regarding Michael’s assets and earning capacity. Moreover, the
court’s sentencing order specifically directed that it be kept continu-
ously apprized of Michael’s financial status, and the court reserved
the right to modify the restitution payment schedule if Michael’s sta-
tus changed. Under these circumstances, the court’s establishment of
UNITED STATES v. VINYARD 19
the schedule for restitution payments was not an abuse of its discre-
tion.
E.
Michael also asserts that his trial counsel’s performance was con-
stitutionally ineffective. He bases this contention on multiple grounds:
(1) his lawyer’s failure to timely obtain James’s sentencing memoran-
dum; (2) the failure of counsel to secure the exclusion of the
Wells/Essary testimony; and (3) the failure of his lawyer to object to
the judge’s "willful blindness" jury instruction.10 Since Michael raises
the ineffective assistance claim for the first time on direct appeal, we
can address it only if it "conclusively appears" from the record "that
his attorney did not provide effective assistance." United States v.
Martinez, 136 F.3d 972, 979 (4th Cir. 1998); see also United States
v. Smith, 62 F.3d 641, 651 (4th Cir. 1995). But cf. United States v.
Russell, 221 F.3d 615, 619 (4th Cir. 2000) (addressing ineffective
assistance claim on direct appeal subsequent to Rule 33 motion for
new trial). It is by no means clear on this record that Michael’s lawyer
was constitutionally ineffective; indeed, none of the asserted "errors"
appear to be sufficiently significant to meet the prejudice requirement
of Strickland. Strickland v. Washington, 466 U.S. 668, 687 (1984)
(holding that prejudice "requires showing that counsel’s errors were
so serious as to deprive the defendant of a fair trial, a trial whose
result is reliable"). As such, Michael has failed to meet the standard
mandated by Martinez and Smith, and we will not address the merits
of his ineffective assistance of counsel claim. If Michael desires to
have this claim adjudicated, he must raise it by way of a collateral
challenge. Smith, 62 F.3d at 651.
10
The Government requested that the district court instruct the jury that
the knowledge requirement of a § 1341 mail fraud charge was met if the
Government demonstrated that Michael deliberately disregarded or con-
sciously avoided information concerning the true nature of CSE. The
court accepted the Government’s request, and it instructed the jury that
the "government can also meet its burden of showing that a defendant
had actual knowledge of falsity if it establishes beyond a reasonable
doubt that he acted with deliberate disregard of the truth or with con-
scious purpose to avoid learning the truth." J.A. 1181.
20 UNITED STATES v. VINYARD
IV.
Pursuant to the foregoing, we find no reversible error in the under-
lying proceedings, and we affirm Michael Vinyard’s convictions and
sentence.
AFFIRMED