United States v. John Bad Wound ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 99-1550
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United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* District of South Dakota.
John Bad Wound, *
*
Appellant. *
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Submitted: October 22, 1999
Filed: February 16, 2000
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Before WOLLMAN, Chief Judge, ROSS and LOKEN, Circuit Judges.
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WOLLMAN, Chief Judge.
John A. Bad Wound appeals from his conviction for various offenses resulting
from his participation in a scheme to defraud Oglala Lakota College (the College)
through the use of phony office supply companies, and from the resulting sentence
imposed by the district court. We affirm Bad Wound’s convictions, vacate his
sentence, and remand for resentencing.
I.
The College is a federally funded institution of post-secondary education located
on the Pine Ridge Indian Reservation in South Dakota. From 1990 to 1996, Bad Wound
was professionally associated with the College in various capacities. In 1990 and 1991,
Bad Wound periodically performed financial consulting work for the College, but had no
consistent employment relationship with it. This changed in January of 1992, when the
College hired Bad Wound to manage its accounting department. He served in this
capacity until March of 1995, at which time he was promoted to vice-president of
business affairs, a position that he held until his departure from the College in 1996.
At some point during Bad Wound’s association with the College, he became
involved in a fraudulent scheme initially hatched in 1991 by Arlynn Knudsen, the College’s
vice-president of business affairs from 1991 to 1995. Under this scheme, Knudsen, Bad
Wound, and several other individuals, including Margaret Minko-Bad Wound, whom Bad
Wound held out to be his wife, formed nine phony supply companies. These companies,
which generally conducted no legitimate business and existed as bank accounts only, billed
the College for supplies that it never received. The College, acting through Knudsen,
issued checks for the non-existent supplies, which were then deposited in the bank
accounts of the phony businesses, ultimately for the benefit of the conspirators. From 1991
to 1995, the College paid a total of $2,657,032.06 to the conspirators through the
fraudulent companies.
In October 1991, Bad Wound personally created one of the supply companies,
Territorial Office Products (Territorial), which engaged in at least some legitimate business
with the College through June of 1993. Minko-Bad Wound, at the direction of Bad
Wound, created two others, Rapid Office Products (Rapid) and Greenway. These two
companies, unlike Territorial, were mere conduits of fraud from their respective formations
in September and October of 1992. Overall, Bad Wound and Minko-Bad Wound
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personally received $174,488.92 in fraudulently obtained funds through their three
companies.
In early 1997, Bad Wound and his co-conspirators’ web of deceit unraveled, and
they were indicted on numerous violations of federal law. Bad Wound was charged with
conspiracy, 18 U.S.C. § 371, theft from an Indian tribal organization, 18 U.S.C. § 1163,
theft of federal funds, 18 U.S.C. § 666, transportation of stolen money, 18 U.S.C. § 2314,
money laundering, 18 U.S.C. § 1956(a)(1), transacting in property derived from unlawful
activity, 18 U.S.C. § 1957, tax evasion, 26 U.S.C. § 7201, and criminal forfeiture, 18
U.S.C. § 982. Bad Wound pleaded not guilty to all counts. Following a four-day trial, the
jury returned a verdict of guilty on all counts, and Bad Wound was sentenced to 151
months’ imprisonment and three years of supervised release.
II.
Bad Wound first challenges his conviction, arguing that the district court erred
in admitting the testimony of Minko-Bad Wound at trial. Prior to trial, Bad Wound
moved to exclude Minko-Bad Wound’s testimony on the basis of the adverse spousal
testimony privilege. He also sought to question Minko-Bad Wound out of the jury’s
presence regarding her awareness of the privilege and whether she wished to assert it. The
court denied both the motion and the request. At trial, Bad Wound renewed his objection,
but it was once again denied. Minko-Bad Wound, with apparent reluctance, then offered
testimony harmful to Bad Wound’s defense, stating that he was part of the illegal scheme
and that she had opened the Rapid and Greenway accounts pursuant to his direction.
We review the district court’s admission of testimony for an abuse of discretion.
See United States v. Fregoso, 60 F.3d 1314, 1326 (8th Cir. 1995). Because we find that
Minko-Bad Wound waived her testimonial privilege, we affirm the court’s ruling.
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Federal courts recognize two distinct marital privileges under Rule 501 of the
Federal Rules of Evidence: the marital confidential communication privilege and the
adverse spousal testimony privilege. See United States v. Jackson, 939 F.2d 625, 627
(8th Cir. 1991). Under the adverse spousal testimony privilege, the privilege at issue
in this case, an individual “may be neither compelled to testify nor foreclosed from
testifying” against the person to whom he or she is married at the time of trial.1 Trammel
v. United States, 445 U.S. 40, 53 (1980) [100 S.Ct. at 914]; see also Jackson, 939 F.2d
at 627. The privilege therefore rests with the testifying spouse, who may waive the
privilege without the consent of the defendant spouse. See Trammel, 445 U.S. at 53.
Minko-Bad Wound entered into a plea agreement following her indictment for
her involvement in the supply company scheme. Under the terms of the agreement,
Minko-Bad Wound pleaded guilty to six of the charged counts in return for the
dismissal of the remaining counts and her promise to provide “complete and truthful
testimony before grand juries, at trial, and at other proceedings as required.”
Bad Wound argues that the agreement lacks the specificity necessary to support
a finding of a voluntary waiver of the testimonial privilege. We do not agree. The First
Circuit recently suggested that a broadly phrased consent to full discovery contained
within a plea agreement might constitute a waiver of the adverse spousal testimony
privilege. See United States v. Yerardi, 192 F.3d 14, 18 (1st Cir. 1999). This
suggestion is consistent with our recognition that a plea agreement that states in general
terms the defendant’s obligation to cooperate with the government can constitute a
waiver of the defendant’s Fifth Amendment privilege against self-incrimination. See
1
The record is unclear whether Bad Wound and Minko-Bad Wound were legally
married under South Dakota law at the time of trial, largely because the validity of their
marriage was never challenged at the district court level. Because of our holding that
Minko-Bad Wound waived any adverse spousal privilege that she may have possessed,
we assume for purposes of this appeal that she and Bad Wound were legally married at
the time of trial.
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United States v. Lawrence 918 F.2d 68, 72 (8th Cir. 1990); see also United States v.
Resto, 74 F.3d 22, 27 (2nd Cir. 1996). If a broadly phrased plea agreement can
effectively waive a constitutional right, we are satisfied that it can also waive an
evidentiary privilege based purely on policy considerations, such as the one at issue
here. See Trammel, 445 U.S. at 44 (discussing the policy rationale underlying the
adverse spousal testimony privilege).
With respect to the voluntariness of the waiver, we note that Minko-Bad Wound
was represented by counsel throughout the plea negotiations and that the plea
agreement itself advised her that by entering into the agreement she would be “waiving
certain statutory and constitutional rights to which she is otherwise entitled.” We
conclude that these are substantial indicia of voluntariness. See Wallin v. Minn. Dep’t
of Corrections, 153 F.3d 681, 689-90 (8th Cir. 1998); Pilon v. Univ. of Minn., 710 F.2d
466, 467-68 (8th Cir. 1983). Accordingly, we find that Minko-Bad Wound validly
waived her testimonial privilege, a finding that is not vitiated by the district court’s
denial of Bad Wound’s request to question Minko-Bad Wound out of the jury’s
presence regarding the privilege. Although in United States v. Jackson we quoted the
witness’s sequestered testimony in upholding a finding that the witness had voluntarily
waived the privilege, we did not hold that such testimony is essential to a finding of
voluntariness. See 939 F.2d 625, 627 (8th Cir. 1991). Here, there is non-testimonial
evidence of voluntariness--a plea agreement entered into with the aid of counsel--that
was not present in Jackson.
In sum, the district court did not abuse its discretion in admitting Minko-Bad
Wound’s testimony.
III.
Bad Wound also challenges his sentence. The district court sentenced Bad
Wound to three concurrent terms of imprisonment, the longest of which--151 months--
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was based on Bad Wound’s convictions for money laundering and transacting in
property derived from an illegal activity.2 In determining Bad Wound’s sentence for
these offenses, the court attributed to Bad Wound $2,657,032.06, which represents the
combined loss caused by all nine of the bogus supply companies. Relying on this
figure, the court added a six-level enhancement to Bad Wound’s base offense level
pursuant to U.S.S.G. § 2S1.1(b)(2)(G), which calls for such an enhancement for money
laundering convictions involving funds in excess of $2,000,000. “We review the
district court’s factual findings for clear error, and its application of the sentencing
guidelines de novo.” United States v. Hunt, 171 F.3d 1192, 1195-96 (8th Cir. 1999).
A.
Bad Wound first contends that the court’s attribution of $2,657,032.06 was
erroneous because the loss caused by the six phony supply companies formed by his
co-conspirators was distinct from the loss brought about by his three companies. Thus,
Bad Wound asserts that only the loss caused by his three companies, $174,488.92,
should be considered in determining the proper level enhancement under U.S.S.G. §
2S1.1(b)(2). We disagree.
The sentencing guidelines provide that in the case of “jointly undertaken criminal
activity,” a defendant is responsible for “all reasonably foreseeable acts . . . of others
in furtherance of the jointly undertaken activity.” U.S.S.G. § 1B1.3(a)(1)(B).
Accordingly, a defendant convicted of conspiracy is properly held accountable for all
reasonably foreseeable acts of co-conspirators advancing that conspiracy. See United
States v. Molina, 172 F.3d 1048, 1057 (8th Cir. 1999); United States v. Brown, 148
F.3d 1003, 1008 (8th Cir. 1998). “Factors relevant to foreseeability include whether
2
Bad Wound was also sentenced to 60 months’ imprisonment for his conspiracy,
theft from a tribal organization, theft of federal funds, and tax evasion convictions, and
120 months for his transportation of stolen monies conviction.
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the defendant benefited from his co-conspirator’s activities and whether he
demonstrated a substantial level of commitment to the conspiracy.” Id.; see also United
States v. Fairchild, 122 F.3d 605, 613 (8th Cir. 1997).
Bad Wound was convicted of conspiring to defraud the College through the use
of phony supply companies. The evidence demonstrates that Bad Wound benefited,
albeit indirectly, from his co-conspirators’ activities to advance this scheme. Although
Bad Wound did not realize financial gain directly from the phony companies not under
his control, his co-conspirators’ acts in furtherance of the overall scheme enabled him
to receive illicit funds through his own companies, thereby benefitting him substantially.
For example, Knudsen issued checks on behalf of the College to each of the nine bogus
companies, including Bad Wound’s, knowing that the College was receiving nothing
in return. Also, co-conspirator Daniel Banuelos, an accountant hired by Knudsen to
perform audits of the College’s accounts, buried in the College’s financial reports all
transactions involving the nine companies so that the College’s administrators would
not detect any missing funds.
The evidence also suggests that Bad Wound was substantially committed to the
overall scheme and not just as it related to his three companies. Most notably, Knudsen
testified that in 1995 he and Bad Wound conversed about the possibility of Bad
Wound’s destroying canceled checks and vendor records to cover any remaining
vestiges of their scheme.
Finally, we note the similarities between this case and United States v. Atkins,
in which we found that the acts of a co-conspirator were reasonably foreseeable to the
defendant because the defendant and his co-conspirator shared a close working
relationship and because the acts of fraud committed by each individual were
remarkably similar. See 25 F.3d 1401, 1404 (8th Cir. 1994). Both of these elements
also exist here. From 1992 to 1995, Bad Wound and Knudsen worked in the same
department and Bad Wound, in the words of Knudsen, was his “right hand . . . to make
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sure the operations, accounting structure, specifically, was maintained.” In addition,
Bad Wound and the other conspirators employed nearly identical means to defraud the
College: all used phony supply companies, received checks issued by Knudsen, and
had Banuelos conceal the transactions in the College’s financial records.
In sum, the acts of his co-conspirators were reasonably foreseeable to Bad
Wound and were in furtherance of the supply company scheme. Accordingly, the
district court did not err in finding that the loss caused by the co-conspirators’
companies was not independent from that caused by Bad Wound’s companies.
B.
Bad Wound also argues that, even if the loss caused by his companies was
generally indistinct from the loss caused by the others, a substantial portion of the
combined loss occurred prior to his joining in the illegal scheme and therefore should
not be considered in determining the proper level enhancement under U.S.S.G. §
2S1.1(b)(2).
“[A] person cannot be held liable for the losses caused by other conspirators in
the scheme prior to the time the person entered the conspiracy.” United States v.
Oseby, 148 F.3d 1016, 1026 (8th Cir. 1998); see also U.S.S.G. § 1B1.3, application
note 2, ¶ 8. We applied this principle in United States v. Cain, a case similar to this
one. 128 F.3d 1249 (8th Cir. 1997). There, the district court found that a fraudulent
stock sale conspiracy existed from December of 1992 to December of 1993, and that
the defendant “was a late comer” to the conspiracy. Id. at 1252. Nonetheless, the
court attributed all of the money obtained during the conspiracy to the defendant for
sentencing purposes. Id. We reversed, concluding that because the record contained
no evidence that the defendant joined the conspiracy before July of 1993, the district
court erred in attributing to the defendant any fraudulent sales made prior to that time.
Id. at 1253.
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Here, the district court made no finding regarding the precise time that Bad
Wound joined the conspiracy. The court found that Knudsen, Banuelos, and Jerry
Godfrey began the supply company scheme on or about June 12, 1991, and that Bad
Wound did not join until a later time. The court made no specific finding regarding the
latter date, and there is insufficient evidence in the record from which we can determine
precisely when Bad Wound entered the conspiracy. The close working relationship
between Bad Wound and Knudsen suggests that Bad Wound may have already joined
the conspiracy in January of 1992, when he was hired by the College. Alternatively,
there is evidence that Bad Wound may not have entered the scheme until September
of 1992, when he and Minko-Bad Wound formed Rapid. Then again, there is evidence
that Bad Wound may have initially formed Rapid and Greenway without knowledge
of Knudsen’s scheme and that Bad Wound did not join the conspiracy until mid-1994,
following a conversation in which he and Knudsen agreed to share the illicit profits
from Bad Wound’s companies.
In the absence of a finding regarding the time at which Bad Wound joined the
conspiracy and in light of the lack of record evidence to establish that date, it is not
possible for us to determine whether the district court correctly attributed to Bad
Wound the total loss caused by the conspiracy. If Bad Wound joined the conspiracy
immediately after being hired by the College, the attribution of the total loss would
constitute harmless error, because from the commencement of the conspiracy until Bad
Wound’s hiring the College paid only $400,992 to the phony supply companies. After
subtracting this sum from $2,657,032, the loss attributable to Bad Wound would still
exceed $2,000,000 and would thus support the court’s six-level enhancement. A
finding that Bad Wound did not join the conspiracy until July of 1994, however, would
have significant consequences for Bad Wound, for by that date the College had paid
$2,072,622 to the companies not operated by Bad Wound. Subtracting this sum from
the total loss would result in a loss attributable to Bad Wound of only $584,410, which
would warrant only a three-level enhancement and result in an offense level of 31, with
a sentencing range of only 108-135 months.
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Accordingly, we vacate Bad Wound’s sentence and remand for additional
proceedings to determine the time at which Bad Wound joined the conspiracy and,
based on this determination, the amount of loss that should be attributed to him under
U.S.S.G. § 2S1.1(b)(2).
IV.
The convictions are affirmed. The sentence is vacated, and the case is remanded
to the district court for further factual findings and for resentencing in accordance
therewith.
LOKEN, Circuit Judge, concurring.
In Part II, the court concludes that Minko-Bad Wound waived her adverse
spousal testimony privilege when she entered into a plea agreement in which she
promised to provide the government “complete and truthful testimony . . . as required.”
I am uncomfortable with this conclusion for two reasons. First, it is not clear from the
face of the plea agreement that Minko-Bad Wound knowingly waived this rather
obscure privilege, and the record does not reveal whether the privilege was discussed
during plea agreement negotiations. Second, the court’s analysis ignores a serious
question -- whether a prior waiver of this privilege may be withdrawn at trial, as the
waiver of the Fifth Amendment testimonial privilege was withdrawn in Stevens v.
Marks, 383 U.S. 234 (1966). Assertion of the adverse spousal testimony privilege may
well breach a plea agreement to cooperate, but that is not the same as concluding that
a plea agreement waiver may not be withdrawn, so that the spouse’s promise to testify
can be specifically enforced.
In my view, we need not resolve these troublesome issues because Bad Wound
failed to preserve them. The adverse spousal testimony privilege belonged to Minko-
Bad Wound, not defendant Bad Wound. Therefore, when she proposed to testify
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adversely to Bad Wound at trial, his only legitimate concern was whether she was
knowingly and voluntarily waiving the privilege at that time. Bad Wound filed a
motion in limine in which he proposed to question Minko-Bad Wound outside the
presence of the jury regarding the waiver issue. The district court cryptically denied
this motion prior to trial, and again when it was renewed at trial. We know from these
rulings the court was unwilling to allow Bad Wound to pursue this evidentiary issue
outside the presence of the jury, a ruling clearly within the court’s broad discretion.
Bad Wound did not inquire whether the court would have permitted (or conducted
itself) a voir dire of Minko-Bad Wound prior to her adverse testimony to clarify
whether she understood the adverse spousal testimony privilege and was voluntarily
waiving it. Thus, Bad Wound waived the only issue he had standing to raise, and his
attack on the admissibility of Minko-Bad Wound’s testimony must be rejected.
I join the remainder of the court’s opinion and its decision to affirm.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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