United States v. Allen Peithman, Jr. , 917 F.3d 635 ( 2019 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 17-2721
___________________________
United States of America
Plaintiff - Appellee
v.
Allen E. Peithman, Jr.
Defendant - Appellant
___________________________
No. 17-2722
___________________________
United States of America
Plaintiff - Appellee
v.
Allen E. Peithman, Jr.
Defendant - Appellant
___________________________
No. 17-2723
___________________________
United States of America
Plaintiff - Appellee
v.
AEP Properties, L.L.C.
Defendant - Appellant
___________________________
No. 17-2768
___________________________
United States of America
Plaintiff - Appellee
v.
Sharon A. Elder
Defendant - Appellant
____________
Appeals from United States District Court
for the District of Nebraska - Lincoln
____________
Submitted: November 14, 2018
Filed: February 27, 2019
____________
Before BENTON, BEAM, and ERICKSON, Circuit Judges.
____________
ERICKSON, Circuit Judge.
In 2013–2014, law enforcement officers in Lincoln, Nebraska, began focused
investigations on “smoke shops” selling “potpourri,” a product containing synthetic
marijuana that when consumed sometimes resulted in significant adverse health
effects. “Dirt Cheap” owned by Allen E. Peithman, Jr. and “Island Smokes” owned
by Sharon A. Elder were two of the shops investigated. Elder is Peithman’s mother.
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Peithman, AEP Properties, and Elder1 were charged in a 14-count indictment.
The indictment contained conspiracy charges pertaining to the distribution of drug
paraphernalia, the distribution of misbranded drugs, structuring more than $100,000
in a 12-month period, mail fraud, the commission of money laundering as well as
other charges relating to the maintenance of drug-involved premises and investment
of illegal drug proceeds. The indictment also included forfeiture allegations.
Following a 13-day trial, the jury acquitted Peithman, AEP Properties, and Elder on
some counts and convicted them on other counts. The district court sentenced
Peithman to a total term of 115 months’ imprisonment for the convictions at issue in
this appeal2 and a consecutive 14-month term of imprisonment for violating his
conditions of supervised release. Elder was sentenced to a total term of 63 months’
imprisonment.3 AEP Properties was fined $450,000 and ordered to pay a special
assessment in the amount of $400. A joint and several money judgment in the total
amount of $1,142,942.32 was ordered to be paid by Peithman, AEP Properties, Elder,
and Cornerstone Plaza (a company Elder owned). The court imposed a fine in the
amount of $500,000 against both Peithman and Elder and ordered each to pay
$5,186.56 in restitution.
1
One other individual and one other corporation were also charged and
convicted of one or more offenses in this case, but they have not appealed.
2
The entire sentence consisted of 115 months’ imprisonment on Counts IX
(investment of illicit drug profits), XI (conspiracy to commit mail fraud), and XII
(conspiracy to structure more than $100,000 in a 12-month period); and concurrent
terms of 36 months on Counts VIII (conspiracy to distribute and possess with intent
to distribute drug paraphernalia) and X (conspiracy to distribute misbranded drugs
with intent to defraud or mislead).
3
The entire sentence consisted of 63 months’ imprisonment on Counts IX
(investment of illicit drug profits), XI (conspiracy to commit mail fraud), and XII
(conspiracy to structure more than $100,000 in a 12-month period); and concurrent
terms of 36 months on Counts VIII (conspiracy to distribute and possess with intent
to distribute drug paraphernalia) and X (conspiracy to distribute misbranded drugs
with intent to defraud or mislead).
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Peithman raises two clusters of issues on appeal: (1) sufficiency of the
evidence, and (2) various assertions of substantive and procedural errors. Peithman
contends the evidence was insufficient to sustain a conspiracy or that illegal profits
were invested. In his second barrage of claims, he argues the district court erred when
it denied his motion for a new trial; when it ordered the money judgment to be joint
and several and found equal culpability among the parties; when it failed to remove
a juror who was ill during the trial; when it calculated the Sentencing Guidelines; and
when it failed to grant a more substantial downward variance.
Elder also raises numerous challenges. She asserts that the evidence was
insufficient to sustain convictions for distributing misbranded drugs and structuring.
She joins Peithman’s claim that the money judgment was imposed in error, and argues
the district court erred by considering acquitted conduct at sentencing, by calculating
the Sentencing Guidelines range incorrectly, by refusing to allow a public
authority/entrapment by estoppel defense, and by imposing a substantively
unreasonable sentence. We reverse that portion of the money judgment imposed
jointly and severally pursuant to 21 U.S.C. § 853 in the amount of $117,653.57 and
remand for further proceedings consistent with this opinion, but affirm the convictions
and sentences in all other respects.
I. Background
In late 2013, law enforcement officers, acting in an undercover capacity, began
buying products suspected of containing synthetic marijuana from smoke shops. Dirt
Cheap and Island Smokes were two of the targeted shops where undercover buys
occurred in 2014 and 2015. Allen Peithman first began operating Dirt Cheap in 2008.
Dirt Cheap sold cigarettes, glass pipes, water pipes, t-shirts, e-cigarette products,
“typical head shop stuff.” When the store first opened, Peithman sold “K2”, which
is now referred to as “potpourri.” Peithman explained to law enforcement that “K2”
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did not contain any banned chemicals, did not cause consumers any problems, and
was in high demand because it did not show up on drug tests. According to Peithman,
“every shop in town” began selling “K2” because the product had a very high profit.
Peithman’s operation of Dirt Cheap was interrupted when he was incarcerated
on a federal firearm charge between March 2013 and June 2014. When Peithman was
operating Dirt Cheap, he primarily relied on his wholesale suppliers to review the list
of prohibited controlled substances and to insure that the “potpourri” complied with
state and federal controlled substances laws. He informed law enforcement that the
vendors constantly changed the products they sold to keep ahead of the evolving law.
The “potpourri” sold at Dirt Cheap and Island Smokes was purchased primarily on the
Internet with money orders. According to Peithman, the profit margins plummeted
for “potpourri” sold during the last few years of his business. Nonetheless, on a “good
day” Dirt Cheap made around five thousand dollars. On a “bad day” it would be a
couple thousand dollars.
During Peithman’s incarceration, Dirt Cheap was operated by Elder, although
Peithman retained ownership of the name Dirt Cheap. In September 2014, Elder
opened her own store, Island Smokes, because Peithman did not want to sell
“potpourri” at Dirt Cheap any longer. Peithman purchased the property for the new
store from his uncle and leased it to his mother. After Island Smokes opened for
business, Dirt Cheap ceased selling “potpourri” but continued to sell what law
enforcement consider drug paraphernalia as well as other items typically sold in
smoke shops. Island Smokes sold drug paraphernalia, “potpourri,” and other items
typically sold in smokes shops.
Between February 2014 and August 2015, law enforcement officers conducted
at least nine undercover buys. Several of the packets purchased were sent to a lab and
tested positive under the United States Drug Enforcement Administration (“DEA”)
drug scheduling as a Schedule I controlled substance. In addition, in April 2014, law
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enforcement obtained a search warrant for five boxes scheduled to be delivered to Dirt
Cheap based on information from a Federal Express driver that he had become ill due
to an odor coming from packages. The boxes contained approximately 2,500 various
fruit-flavored packets of “K2/potpourri” in three-gram and ten-gram amounts. At that
time, the packets tested negative for DEA Schedule I controlled substances.
By September of 2014, the Lincoln police department was receiving an average
of 20 to 30 calls per week about people hanging around Island Smokes and trespassing
at an adjacent apartment complex. Over a four-day period in April 2015, law
enforcement officers responded to at least seven medical emergencies involving
“potpourri” bought at Island Smokes and smoked by the purchaser. Law enforcement
encountered some of the overdose victims near Island Smokes and others they visited
at the hospital.
On April 23, 2015, law enforcement officers executed a search warrant at Island
Smokes. One of the investigators noticed 100 pipes in a storage area behind the front
counter, which in his experience were commonly used to smoke methamphetamine.
When questioned, Elder called them “oil burners.” When asked if Elder had aromatic
oil to burn in the pipes, she located two small vials from behind the checkout counter.
Elder reported to law enforcement that she generally kept 10 vials of oil per 100 pipes.
Officers seized a “K2” packet and pipe discovered while searching the back
garage area, which upset Elder because she believed all the “K2/potpourri” had been
removed from the store. Elder told investigators during the search of her store that
even though the “potpourri” packets were labeled “do not burn,” she knew a majority
of her customers smoked “potpourri,” purportedly to relax. She also informed the
investigators that her customers had requested a milder blend because her current and
recent stock was too strong and they did not like the effects.
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In total, officers seized from Island Smokes more than 1,000 assorted glass
pipes, bongs, gas mask pipes, dugouts, one-hitter pipes in different colors, sizes, and
styles. Cigar wrappers and rolling papers were also seized. A total of 560 packets of
“potpourri” were seized. Twelve sample “potpourri” packets from the inventory were
sent to a lab for testing. Four of the 12 sample “potpourri” packets contained DEA
Schedule I controlled substances. In addition, Food and Drug Administration
(“FDA”) Special Agent Bradley Cooper opined at trial that the seized “potpourri”
packets were misbranded because they did not comply with FDA labeling
requirements. He testified the packets were missing instructions for proper use,
adequate warnings of potential adverse side effects, a list of active ingredients, a
description of the contents, and the manufacturer’s name.
On August 25, 2015, law enforcement officers executed a search warrant at Dirt
Cheap. Glass pipes, bongs, hookahs, water pipes, scales, grinders, dugouts, one-
hitters, plastic baggies, rolling papers, screens, other types of drug paraphernalia, and
business records were seized. Law enforcement officers also obtained bank records
for Peithman and Elder and their business accounts. An operations officer for West
Gate Bank testified during the trial that multiple cash deposits in Peithman’s Dirt
Cheap business account would be made on a single day. For example, on December
19, 2013, a $5,000 cash deposit was made at 10:12 a.m. using teller #54; a second
$4,000 cash deposit was made to the same account at 2:20 p.m. at the same branch
using teller #56; and a third cash deposit of $1,292 was made 18 minutes later to the
same account at the same branch using teller #58.
Between October 1, 2013, and May 11, 2015, a total of $1,100,957.65 in cash
was deposited into bank accounts belonging to Peithman, Elder, Cornerstone Plaza,
and AEP Properties. An expert in the field of financial investigations testified at trial
about transactions indicative of structuring. He opined that the “even dollar” cash
deposits made to the various accounts belonging to businesses were indicative of an
intent to structure because they are inconsistent with normal business activity. He
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further opined that two cash deposits made on consecutive days in an amount slightly
under the $10,000 threshold daily limit might also be indicative of an intent to
structure. Similarly, multiple deposits on the same day, and sometimes less than 20
minutes apart as occurred here, that totaled more than $10,000 for the day, but
individually were under the $10,000 limit was indicative of structuring. The expert
also testified that structuring could occur through multiple cash deposits on the same
day at different banks in amounts less than $10,000 to avoid depositing more than
$10,000 into any one account on a single day. According to the expert, the bank
records presented at trial contained deposits indicative of structuring.
After her arrest for charges related to this case, Elder stressed to law
enforcement that she, not her son, was solely responsible for the sale of “potpourri”
during and after Peithman’s incarceration. Both Elder and Peithman asserted at trial
that Elder “went to great lengths” and used “due diligence” to make sure the products
she was selling were legal. They cited, as examples, Elder’s efforts to review the
chemical sheets associated with the products, her discussions with the suppliers, her
attendance at conferences, her consultation with a lawyer, and her decision to keep in
contact with law enforcement and follow their advice, such as when she was asked to
stop selling a particular product because of the serious side effects people were
experiencing.
After what the district court described as “a long, and very well fought jury
trial,” the jury convicted Peithman, Elder, and AEP Properties on some counts and
acquitted on others. The jury found Peithman and Elder guilty of conspiracy to
distribute drug paraphernalia, conspiracy to commit mail fraud, investment of illicit
drug profits, conspiracy to distribute misbranded drugs, and conspiracy to structure
financial transactions. Peithman was sentenced to a period of incarceration of 115
months and Elder to a term of 63 months. The lengthier sentence for Peithman was
due primarily to his criminal history. Both sentences were at the high end of the
applicable advisory Sentencing Guidelines range as calculated by the court.
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The government sought forfeiture of specific property owned by Peithman,
Elder, and their companies. Both parties agreed to submit the issue of which property
should be forfeited to the jury. The jury agreed that the packets of “potpourri” and
related drug paraphernalia together with one bank account were subject to forfeiture.
The jury was unable to reach a unanimous agreement on other specific items and
found other items should not be forfeited. The items the jury did not forfeit or could
not agree should be forfeited were the most valuable items of specific property.
The government also sought a money judgment as part of the forfeiture
allegations pertaining to the drug paraphernalia conviction, the mail fraud conviction,
and the structuring conviction. That issue was decided by the court. The government
requested a money judgment in the amount of $2,248,728.56. After conducting a
hearing on the issue, the court found, by a preponderance of the evidence, the
appropriate money judgment was in the amount of $1,142,942.32, which
“represent[ed] the wholesale costs of acquiring the drug paraphernalia and potpourri,
the sale of which generated the structuring.” The court specifically rejected the
“proceeds theory” and was cautious to take steps to ensure double-counting did not
occur. This timely appeal followed.
Peithman has raised eight issues on appeal, challenging decisions made post-
trial. Elder has raised ten issues, challenging decisions made during the trial and post-
trial. We have carefully considered each of their arguments and in this opinion group
related claims.
II. Discussion
1. Peithman’s 18 U.S.C. § 3147 Conviction
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18 U.S.C. § 3147 increases the punishment for an offense committed while on
pretrial release. It is indisputable that the jury should not have been asked to
determine Count XIV–that is, whether Peithman committed an offense under 18
U.S.C. § 3147. Years ago, this Court held that § 3147 provides for an enhancement
of a sentence, not a separate offense to be found by a jury. United States v.
Feldhacker, 849 F.2d 293, 299 (8th Cir. 1988). The district court acknowledged the
error and took responsibility for it. The court vacated the conviction (Count XIV)
before sentencing.
Peithman asked for a remedy beyond vacating the conviction. He moved for
a new trial, arguing the entire trial was tainted by permitting evidence of his prior
conviction and conditions of supervised release because Count XIV was submitted to
the jury. The court denied the new trial motion on the ground that the interviews
Peithman and Elder provided to law enforcement would have been admitted into
evidence regardless of Count XIV and no “conceivable prejudice” could exist since
there were 18 references during Peithman’s interview and five references during
Elder’s interview to the fact that Peithman had been in prison, was on supervised
release, and was staying out to the smoke shop business to avoid trouble with his
probation officer.
During the new trial motion and now on appeal, the parties characterize
Peithman’s defense theory as one in which Peithman was not involved in unlawful
activity during the times alleged in the indictment because he was in jail during a
majority of that time and that following his release he consciously avoided the
business due to his supervised release conditions. Peithman argues on appeal that he
is entitled to a new trial because this defense was thrust upon him when the
government wrongfully charged him under 18 U.S.C. § 3147 and then compounded
the error by introducing evidence that: (1) he had an unidentified prior federal
conviction; (2) he was placed in the “high risk” supervised release case load; and (3)
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he was on supervision for three years and had to comply with identified terms and
conditions during the time of supervision.
We have reviewed the trial transcript. The defense arguments for acquittal
advanced during the trial are remarkably different than what has been portrayed on
appeal. The prosecutor made the following assertions during her opening statement:
Peithman initially ran Dirt Cheap and then was “gone for a while;” while he was gone,
Peithman had given a power of attorney to Elder to run the store; and in the summer
of 2014, Peithman went “ back to work” at Dirt Cheap while on “what’s called
supervised release from a prior matter.”
Peithman’s attorney also mentioned during his opening statement Peithman’s
absence from the business. Counsel explained to the jury:
And when this indictment happened in 2013, all the way up until June of
2014, he wasn’t even around. Now, he had started Dirt Cheap back in
2008 and ran it for a while until he left the state. So for the first part of
this indictment, which on Count I starts from October 1st, 2013, and
goes through April 23rd of 2015, Allen Peithman, AJ, as many of his
friends call him, wasn’t even around for most of that. He had nothing to
do with the business. Dirt Cheap was still -- was still going, operated by
his mother, but he had nothing to do with the day-to-day operations.
It was at this point that Peithman’s theory of defense diverged from the prosecutor’s
theory. Peithman contended he was not guilty because he changed occupations.
According to defense counsel, Peithman shifted from being a business owner to being
a landlord. Counsel clearly laid out Peithman’s intentions to the jury:
AJ was going to get away from the head shop, and he was going to start
investing in real estate. He was going to be a landlord.
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The shop at Dirt Cheap, he was a landlord. He collected rent from Dirt
Cheap. He collected rent from Island Smokes. Every now -- His mom
ran the business, Shari. Every now and then, she’d need a favor from
him, he is her son, to open the door sometimes when she couldn’t make
it down to Dirt Cheap. Would he take the cash that she’d made that day
and drop it in the bank? Yes.
But AJ was not in some type of agreement or conspiracy with his
mother. He was a landlord and he was a son, and that’s the evidence that
you are going to hear.
During closing argument, Peithman’s counsel reiterated comments he made
during his opening statement. Peithman argued to the jury that he was being singled
out because of his family’s wealth. Counsel reiterated several times during his closing
argument that Peithman was not in the smoke shop business; rather, he was a landlord.
Counsel argued, in particular:
The whole thing was a game of gotcha. Follow the money. It’s a game
of gotcha because the Government wants their money. They want the
Elder money. They could have shut this down at any time. They could
have walked in there -- They had a positive lab for synthetic marijuana,
I believe Officer Reynolds said, in summer of 2014, and they sat on it,
because this case was bigger than this public health crisis that they now
claim existed.
***
AJ gets out of prison. His mom has taken over the business. She buys
him a property, like a mom might do who has money. She had,
essentially, bought the business for him, so it’s not odd that she bought
the building and he was going to be the landlord. That doesn’t make him
part of the business.
Look, AJ had money. AJ was wealthy. He had that cash. He had those
coins. He was making his own way.
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Counsel’s defense theory and arguments advanced to the jury had little to do
with Peithman’s prison stay or supervised release conditions. He argued this case was
a “smoke-filled prosecution.” He argued it was a case of “gotcha.” Counsel argued
that the Peithman/Elder family had been targeted because of their wealth. He argued
Elder was innocent of the charges because she acted in good faith and did everything
she could to ensure the products she was selling were legal. Counsel argued Peithman
was out of the smoke shop business during the time frame alleged in the indictment
because he was a landlord. He was in the business of buying and leasing real estate.
A review of the trial transcript demonstrates that Peithman was not forced to, and he
did not, embrace a defense focused on the period of incarceration and conditions of
supervised release because Count XIV was submitted to the jury.
Motions for a new trial are warranted only when “a serious miscarriage of
justice may have occurred.” United States v. Braden, 844 F.3d 794, 801 (8th Cir.
2016) (quoting United States v. Fetters, 698 F.3d 653, 656 (8th Cir. 2012)). An
evidentiary error is harmless if it did not substantially influence the jury’s verdict.
United States v. Aldridge, 664 F.3d 705, 714 (8th Cir. 2011) (quoting United States
v. Henderson, 613 F.3d 1177, 1183 (8th Cir. 2010)). “Error may be harmless where
‘the government introduced ample competent evidence from which the jury could
conclude beyond a reasonable doubt that the defendant was guilty even without the
evidence that should have been excluded.’” United States v. Cotton, 823 F.3d 430,
435 (8th Cir. 2016) (quoting Aldridge, 664 F.3d at 714).
The error in submitting to the jury a statutory sentencing enhancement is not
one we consider lightly. On this record, however, the error was harmless. Both
Peithman and Elder discussed Peithman’s incarceration and supervised release status
during their interview with law enforcement officers. Even if Count XIV had not
existed, the court indicated it would have allowed those statements to be introduced
at trial. Peithman has not persuaded us that he likely would have been successful in
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limiting the statements at issue in the absence of Count XIV. Regardless of Count
XIV, an explanation of Peithman’s absence from the smoke shop business during a
portion of the relevant time period would have been before the jury. More importantly
and contrary to Peithman’s argument, inclusion of evidence regarding Peithman’s
prior conviction, period of incarceration, and conditions while on supervised release
did not force upon him a defense strategy that he did not select. In fact, he chose a
different strategy, which in the end did not persuade the jury. The district court did
not abuse its discretion by denying Peithman’s motion for a new trial.
2. Public Authority/Entrapment by Estoppel Defense
Elder argues the district court erred by refusing to allow her to present a public
authority/entrapment by estoppel defense. We review the refusal to permit an
affirmative defense de novo because it is question of law. United States v. Carlson,
810 F.3d 544, 554 (8th Cir. 2016).
Elder sought to present a public authority or entrapment by estoppel defense on
the ground that, after the inventory was seized during execution of the search warrant,
the city attorney provided her with a community protection agreement. The
agreement requested Elder to voluntarily “cease and desist” selling “potpourri” and
it set a signing deadline of May 15, 2015. The letter warned Elder that if she did not
voluntarily sign the agreement, the city would take “legal action in the very near
future.” In seeking to present these affirmative defenses, Elder also relied on what she
described as a “close working relationship with law enforcement” with regard to what
substances were legal or illegal as well as an unnamed police officer who she alleged
told her it was legal to sell synthetic cannabinoids in Lincoln.
A “public authority defense requires a defendant to show that [s]he was
engaged by a government official to participate in a covert activity.” United States
v. Parker, 267 F.3d 839, 843 (8th Cir. 2001) (citing United States v. Achter, 52 F.3d
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753, 755 (8th Cir. 1995)). There is no evidence that Elder relied on the authority of
a government official when operating the smoke shops at issue, nor is there evidence
that a federal law enforcement officer asked her to act in a manner in violation of
federal law. The district court properly declined to instruct the jury on the defense of
public authority.
“Entrapment by estoppel arises when a government official tells a defendant
that certain conduct is legal, and the defendant commits what otherwise would be a
crime in reasonable reliance on the official representation.” Parker, 267 F.3d at 844
(citing United States v. Benning, 248 F.3d 772, 775 (8th Cir. 2001)). In the letter to
Elder, the city attorney never told Elder her conduct was legal. The city made no
promises regarding criminal prosecutions and specifically explained to Elder that an
agreement by the city not to take legal action against the businesses selling
“potpourri,” such as declaring them public nuisances, was not binding on federal,
state, or local prosecuting authorities. Elder has not shown a representation made by
the city was misleading, let alone intentionally misleading. In addition, Elder cannot
show reliance, particularly when the city attorney’s statements were made after
execution of the search warrant.
Elder’s willingness to sign a community protection agreement, after contraband
had been seized, is not evidence that a government official told Elder that her conduct
was legal. Likewise, Elder’s willingness to work with law enforcement by removing
particularly potent “potpourri” packets for sale because consumers were overdosing
and some almost died is not evidence that a government official told Elder the
products were legal to sell. The district court properly declined to instruct the jury on
the defense of entrapment by estoppel.
3. Sufficiency of the Evidence
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Peithman argues the evidence was insufficient to support the existence of a
conspiracy or to prove the conviction for investment of illicit drug profits. Elder
argues the evidence was insufficient to support the sale of misbranded drugs and the
existence of structuring of bank deposits.
“We review challenges to the sufficiency of the evidence de novo.” United
States v. Johnson, 745 F.3d 866, 868–69 (8th Cir. 2014) (citing United States v.
Sullivan, 714 F.3d 1104, 1107 (8th Cir. 2013)). The evidence is to be viewed “in the
light most favorable to the guilty verdict, granting all reasonable inferences that are
supported by that evidence.” Id. at 869. In our review, we do not weigh the evidence
or the credibility of the witnesses. United States v. Wiest, 596 F.3d 906, 910 (8th Cir.
2010) (citing United States v. Honarvar, 477 F.3d 999, 1000 (8th Cir. 2007)). “We
will reverse a conviction only if no reasonable jury could have found the defendant
guilty beyond a reasonable doubt.” Johnson, 745 F.3d at 869.
Sufficient evidence was presented to sustain a jury finding that Peithman was
more than “merely associated with” Elder. Peithman and Elder ordered “potpourri”
and drug paraphernalia from out-of-state suppliers. The products were shipped to Dirt
Cheap and Island Smokes using interstate common carriers such as FedEx and UPS.
Typically, payments for the shipments were made with money orders and/or cashier’s
checks. Peithman and Elder attempted to disguise the amounts and cash proceeds
from the sale of illegal products by making cash deposits using different tellers,
different branches of the same bank, different accounts, different banks, and by
purchasing money orders at multiple agents to avoid the filing of currency transaction
reports for deposits exceeding the $10,000 threshold as provided in 31 U.S.C. § 5313.
Store employees testified about their knowledge and understanding of
Peithman’s involvement in the businesses. It was clear that Peithman and Elder
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communicated regularly about the businesses’ operation. Peithman accepted rent
payments from Elder for Dirt Cheap and Island Smokes. Proceeds from the sale of
drug paraphernalia and misbranded drugs were used to purchase the building and real
property where Island Smokes was located. Additional real estate and vehicles were
also purchased with money obtained through the sale of drug paraphernalia and
misbranded drugs. Peithman and Elder had knowledge that the “potpourri” being sold
at Island Smokes and Dirt Cheap was being smoked by consumers. There was
evidence presented at trial by way of expert testimony that the “potpourri” failed to
comply with FDA labeling requirements.
The evidence overwhelmingly established the existence of a conspiracy, that
illicit drug profits were used to purchase real and personal property, the sale of
misbranded drugs occurred during the time period alleged in the indictment, and
structuring took place to disguise the proceeds being realized from the sale of
unlawful controlled substances and drug paraphernalia. Neither Peithman nor Elder
have presented a sufficient reason to disturb the jury’s findings.
4. Request to Remove Sick Juror
Peithman argues the district court abused its discretion by refusing to substitute
an alternate juror in place of a temporarily sick juror. See United States v. Blom, 242
F.3d 799, 805 (8th Cir. 2001) (noting “most rulings on juror challenges are reviewed
on appeal for abuse of discretion). Juror No. 4 announced on the afternoon of the
fourth day of trial that she was tired and unable to concentrate. She had been taking
medication for mononucleosis and was so tired in the evenings that she could not
work as a Mary Kay consultant. The court recessed the trial for the day to allow the
juror to rest. On the next morning, the juror indicated she was feeling better. The
judge asked the following question, which was approved by the lawyers: “If you were
to remain as a juror, are you confident or not confident that you will be able to render
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a thoughtful and attentive decision?” The juror responded: “I’m confident that I
would be.”
In light of the juror’s representation that she would be able to be attentive for
the remainder of the trial and the lack of any indication the juror was unable to
understand or appreciate the evidence that had been presented before she informed the
court of her exhaustion, the district court did not abuse its discretion in denying the
motion to strike the juror and replace her with an alternate.
5. Money Judgment
The indictment sought forfeiture under 31 U.S.C. § 5317(c); 18 U.S.C. §§
981(a)(1)(C) and 982(a)(1); and 28 U.S.C. § 2461(c) of all real and personal property
upon conviction of an offense listed in Counts XI through XIII. Peithman and Elder
each were convicted on Counts XI (conspiracy to commit mail fraud) and XII
(conspiracy to structure financial transactions). The indictment also sought forfeiture
under 21 U.S.C. § 853(a) of specified real property; vehicles; bank accounts; and
controlled substances, drug paraphernalia, and/or misbranded drugs upon conviction
of a controlled substance offense listed in Counts I through IX. Peithman and Elder
each were convicted of Count VIII (conspiracy to distribute and possess with intent
to distribute drug paraphernalia). The government further sought a money judgment
as part of the forfeiture allegations for the convictions related to the sale of drug
paraphernalia, mail fraud, and structuring.
The court imposed a money judgment in the total amount of $1,142,942.32 plus
interest as provided by law. This amount consisted of the costs to purchase drug
paraphernalia, which the court found totaled $117,653.57, plus the costs to purchase
“potpourri” related to the mail fraud conviction, which the court found totaled
$1,025,288.75.
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Peithman and Elder have not challenged the government’s asserted statutory
bases for forfeiture. Rather, they argue the money judgment imposed jointly and
severally against them (and their companies) should be vacated because it is
inconsistent with the jury’s decision not to forfeit most of their property and contrary
to the Supreme Court’s decision in Honeycutt v. United States, 137 S. Ct. 1626(2017). “[W]e review the district court’s factual findings for clear error but apply a
de novo standard of review to [the issue] of whether or not those facts render the
[asset] subject to forfeiture.” United States v. Dodge Caravan Grand SE/Sport Van,
VIN No. 1B4GP44G2YB7884560, 387 F.3d 758, 761 (8th Cir. 2004) (citing United
States v. $84,615 in U.S. Currency, 379 F.3d 496, 501 (8th Cir. 2004)). “If the
government seeks a personal money judgment, the court must determine the amount
of money that the defendant will be ordered to pay.” Fed. R. Crim. P. 32.2(b)(1)(A).
“The court may make the determination based on evidence in the record, or on
additional evidence submitted by the defendant or evidence submitted by the
government in support of the motion for the entry of a judgment of forfeiture.” Fed.
R. Crim. P. 32.2 advisory committee’s notes to the 2000 amendments. The
government bears the burden of proving by a preponderance of the evidence the
amount of the proceeds that should be subject to a personal money judgment. United
States v. Bieri, 21 F.3d 819, 822 (8th Cir. 1994).
When reviewing money judgments, we have explained: “[T]he law does not
demand mathematical exactitude in calculating the proceeds subject to forfeiture.”
United States v. Prather, 456 F. App’x 622, 626 (8th Cir. 2012) (quoting United States
v. Roberts, 660 F.3d 149, 166 (2d Cir. 2011)). “Rather, district courts may use
general points of reference as a starting point for a forfeiture calculation and make
reasonable extrapolations supported by a preponderance of the evidence.” Id.21 U.S.C. § 853 provides that a defendant convicted of an enumerated
controlled substance offense “shall forfeit to the United States . . . any property
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constituting, or derived from, any proceeds the person obtained, directly or indirectly,
as a result of such violation.” In Honeycutt v. United States, the Supreme Court held
that forfeiture of property under § 853 is limited to property the defendant himself
actually acquired as a result of the crime, and further held that joint and several
liability was not appropriate for co-conspirators. 137 S. Ct. at 1632–33. In
Honeycutt, the Court declined to hold a co-conspirator responsible for the entire
forfeiture judgment when he only managed the sales and inventory, had no ownership
interest, and never obtained tainted property. Here, both Peithman and Elder had
ownership interests, worked together to operate the businesses, and shared in the
proceeds obtained by engaging in criminal activity. While we find no clear error in
the court’s determination that Peithman and Elder were equally culpable, Honeycutt
precludes the district court from imposing joint and several liability for co-
conspirators under § 853. We reverse that portion of the money judgment
($117,653.57) imposed jointly and severally under § 853 relating to the conviction for
conspiracy to distribute drug paraphernalia, and remand for proceedings consistent
with this opinion.
The bulk of the total money judgment imposed related to the conviction for
conspiracy to commit mail fraud regarding misbranded drugs (the “potpourri”).
Section 981(a)(1)(C) provides for the forfeiture of “[a]ny property, real or personal,
which constitutes or is derived from proceeds traceable to a violation of . . . any
offense constituting ‘specified unlawful activity’ (as defined in section 1956(c)(7) of
this title), or a conspiracy to commit such offense.” 18 U.S.C. § 981(a)(1)(C). “Mail
fraud is a ‘specified unlawful activity.’” United States v. Adetiloye, 716 F.3d 1030,
1041 (8th Cir. 2013) (citing 18 U.S.C. § 1956(c)(7)).
We note a circuit split has developed on the question of whether Honeycutt
applies to criminal forfeitures under § 981(a)(1)(C). Compare United States v.
Sexton, 894 F.3d 787, 798–99 (6th Cir. 2018) (holding that Honeycutt does not apply
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to forfeiture under 18 U.S.C. § 981(a)(1)(C)), with United States v. Gjeli, 867 F.3d
418, 427 (3d Cir. 2017) (finding that 18 U.S.C. § 981(a)(1)(C) is substantially the
same as the [statute] under consideration in Honeycutt”), and United States v. Carlyle,
712 F. App’x 862, 864–65 (11th Cir. 2017) (per curiam) (remanding to the district
court for a determination on whether Honeycutt governed wire fraud forfeiture under
§ 981(a)(1)(C) and observing it appeared likely to apply). A review of the text and
structure of the two statutes reveals similarities and also notable differences. Unlike
in 21 U.S.C. § 853, the term “proceeds” is defined in 18 U.S.C. § 981(a)(1)(C). And
it is broadly defined in three different ways. Section 981(a)(2) provides distinct
definitions for three categories of offenses. As relevant in this case, § 981(a)(2)(A)
defines proceeds as “property of any kind obtained directly or indirectly, as a result
of the commission of the offense giving rise to forfeiture, and any property traceable
thereto, and is not limited to the net gain or profit realized from the offense.” The two
statutes being compared are similar in a sense that they both use the verb “obtained,”
which the Supreme Court placed great emphasis on when it limited forfeiture to
personal liability. It is also notable that the requirement that property be “traceable”
to the commission of the offense as contained in § 981(a)(2)(A) is similar to § 853’s
requirement that the property be “tainted,” as described in Honeycutt.
Turning to the differences between the statutes, a material distinction is the lack
of a reference to a “person” in § 981. See Sexton, 894 F.3d at 799 (describing the
phrase “the person obtained” as the “linchpin” of the Honeycutt decision). In contrast,
§ 853 applies to property “the person obtained, directly or indirectly, as the result of”
the crime. The Supreme Court noted that § 853(a) “define[d] forfeitable property
solely in terms of personal possession or use.” 137 S. Ct. at 1632.
The plain language under § 981 is broader than § 853 and less focused on
personal possession. As set forth in § 981(a)(2)(A), property is subject to forfeiture
if it is “traceable” to the crime. The statute does not contain any language that
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requires possession of the property by the defendant, either explicitly or implicitly.
We think these differences are significant. We join the Sixth Circuit and conclude that
the reasoning of Honeycutt is not applicable to forfeitures under 18 U.S.C. §
981(a)(1)(C) and hold the district court did not err when imposing joint and several
liability as to this portion of the money judgment.
When determining the amount of the money judgment, the district court
reasoned that by concentrating on the wholesale costs, the money judgment would be
proportional to the gravity of Peithman’s and Elder’s offenses. We find no clear error
in the district court’s decision to use the cost of acquiring the “potpourri,” nor in its
calculation of the appropriate amount which flowed from the conspiracy to commit
mail fraud as to the sale of misbranded drugs. See Prather, 456 F. App’x at 625
(affirming court’s imposition of a $41,600 money judgment based on the defendant’s
statement that he sold crack cocaine for 52 weeks and profited in the amount of $800
per week). The fact that the jury did not forfeit Peithman’s real property, vehicles, or
bank accounts does not render the court’s determination in error. Likewise, the fact
that the jury forfeited one of Elder’s bank accounts and found her corporation,
Cornerstone Plaza, guilty of five counts does not render imposition of joint and
several liability under 18 U.S.C. § 981(a)(1)(C) in error. We affirm the district court’s
imposition of a joint and several money judgment under § 981(a)(1)(C) in the amount
of $1,025,288.75.
6. Sentencing Guidelines Calculations and Reasonableness of Sentences
We review a district court’s factual findings pertaining to the calculation of the
applicable United States Sentencing Guidelines (“U.S.S.G.” or “Guidelines”) range
for clear error and its application of the Guidelines de novo. United States v. Hairy
Chin, 850 F.3d 398, 402 (8th Cir. 2017) (quoting United States v. Barker, 556 F.3d
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682, 689 (8th Cir. 2009)). If we find no error, we review the sentence for substantive
reasonableness. Id.Both Peithman and Elder were sentenced within the Guidelines range as
calculated by the district court. A sentence within the Guidelines range is
presumptively reasonable. United States v. Washington, 893 F.3d 1076, 1080 (8th
Cir. 2018) (quoting United States v. Meadows, 866 F.3d 913, 920 (8th Cir. 2017)).
We review a district court’s refusal to grant a defendant’s requested downward
variance for abuse of discretion. United States v. Jackson, 852 F.3d 764, 777 (8th Cir.
2017). Likewise, we review the substantive reasonableness of a sentence under the
deferential abuse-of-discretion standard. United States v. Feemster, 572 F.3d 455, 461
(8th Cir. 2009) (quoting Gall v. United States, 552 U.S. 38, 51 (2007)). “A district
court abuses its discretion when it ‘(1) fails to consider a relevant factor that should
have received significant weight’; (2) ‘gives significant weight to an improper or
irrelevant factor’; or (3) ‘considers only the appropriate factors but in weighing those
factors commits a clear error of judgment.’” Id. (quoting United States v. Kane, 552
F.3d 748, 752 (8th Cir. 2009)).
A. Allen Peithman, Jr.’s Sentence
Peithman argues the district court miscalculated his Guidelines range, erred in
failing to consider U.S.S.G. § 5G1.3(b), and abused its discretion by refusing to grant
a more substantial downward variance. The court determined Peithman’s base offense
level was 24. The court applied a two-level enhancement under U.S.S.G. §
2D1.1(b)(12) for maintaining a premises for the purpose of distributing a controlled
substance. The court also applied a two-level increase for obstruction of justice
because Peithman hid assets for the purpose of avoiding forfeiture. The concealed
assets included “hundreds of thousands of dollars” and gold and silver.
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After the increases, Peithman’s total offense level was 28. With eight criminal
history points, Peithman was in criminal history category IV. These determinations
resulted in an advisory Guidelines sentencing range of 110 to 137 months. The court
contemplated a sentence below the advisory Guidelines range for two reasons: (1)
reluctance to rely on acquitted conduct; and (2) the manner in which the Guidelines
convert “potpourri” to a marijuana equivalent. The Guidelines utilize a ratio of 1
gram of synthetic controlled substance to 167 grams of marijuana. The court noted
its “dissatisfaction” with that ratio.
The court varied downward two levels, which produced an advisory Guidelines
sentencing range of 92 to 115 months. Peithman was sentenced to concurrent 115
month terms of imprisonment on Counts IX, XI, and XII. The court imposed
concurrent sentences of 36 months on Counts VIII and X–offenses that carried a
statutory maximum imprisonment term of 36 months.
Peithman asserts the court erred when it applied an enhancement under §
2D1.1(b)(12) because the enhancement only applies to controlled substance offenses,
not paraphernalia offenses, and it improperly included acquitted conduct. We
disagree.
The Guidelines explain that “[m]anufacturing or distributing a controlled
substance need not be the sole purpose for which the premises was maintained, but
must be one of the defendant’s primary or principal uses for the premises, rather than
one of the defendant’s incidental or collateral uses for the premises.” U.S.S.G. §
2D1.1 cmt. n.17. The evidence presented at trial established Peithman maintained a
business with the sale of “potpourri” as a primary use. According to Peithman’s own
admissions, “potpourri” was in high demand and was more profitable than other items
sold at the store.
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Peithman’s second assertion pertaining to consideration of acquitted conduct
is foreclosed by our precedent. “Whether or not the district court relied on acquitted
conduct, ‘[i]t is settled in this circuit ... that the Constitution does not preclude a
district court from considering acquitted conduct in sentencing a criminal defendant.’”
United States v. Roberts, 881 F.3d 1049, 1053 (8th Cir. 2018) (quoting United States
v. Papakee, 573 F.3d 569, 576 (8th Cir. 2009)). The district court did not err in
applying the enhancement under U.S.S.G. § 2D1.1(b)(12).
Peithman also argues the district court erred by applying an obstruction of
justice enhancement under U.S.S.G. § 3C1.1. The court found Peithman had lied to
pretrial services when he failed to disclose money located in a safe. During the
forfeiture portion of the trial, Peithman admitted he failed to report all assets to his
pretrial services officer in an attempt to keep the assets from being taken. Application
note 4(H) to § 3C1.1 states the enhancement applies to conduct that involves
“providing materially false information to a probation officer in respect to a
presentence or other investigation for the court.” Based on Peithman’s own
admission, the district court did not clearly error in applying a two-level increase for
obstruction of justice.
Peithman next claims the district court erred by refusing to give him a two-level
downward adjustment for being a minor participant. Peithman was not a minor
participant in the offenses. The evidence in the record supports the district court’s
finding that Peithman was as culpable as Elder. There was sufficient evidence for a
jury to find Peithman understood the scope and structure of the criminal activity and
participated in it. Peithman was ineligible for a minor-role adjustment.
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Peithman next argues the district court erred in cross-referencing the controlled
substance table. U.S.S.G. § 2D1.7 is entitled “Unlawful Sale or Transportation of
Drug Paraphernalia; Attempt or Conspiracy.” Subsection (b) of § 2D1.7 provides for
a cross-reference if the offense involved a controlled substance. Peithman was
involved in the sale of misbranded drugs that tested positive for a DEA Schedule I
controlled substance. The cross-reference plainly applied.
Peithman’s last claim of error regarding the Guidelines calculation pertains to
the structuring conviction. Peithman contends the amount that should have been
attributed to him is less than $550,000 due to the period of time he was incarcerated.
The structuring conviction played no role in sentencing Peithman because it was
grouped with the other convictions. When offenses are grouped, the Guidelines range
that produces the highest offense level is used. U.S.S.G. § 3D1.3(b). In this case, it
was the conviction for possession and distribution of drug paraphernalia that produced
the highest offense level relied on by the court at sentencing. Finding no calculation
error for that conviction, any error with regard to the structuring conviction is
harmless.
Peithman argues in the alternative that if the district court calculated the
Guidelines range correctly, the district court erred by not granting a more substantial
downward variance. Peithman asserts the variance the district court granted “was
more form over substance” since the sentence fell within the original Guidelines range
of 110 to 137 months. We find the district court acted within its discretion when it
varied downward and then imposed a sentence within the reduced Guidelines range
that happened to also be within the initial Guidelines range.
Finally, Peithman argues the court’s decision to impose a consecutive sentence
on the revocation matter was in error under U.S.S.G. § 5G1.3(b). The district court
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also found it was not going to account for the six month state probation revocation
sentence because “they’re two separate crimes.” U.S.S.G. § 7B1.3(f) states:
Any term of imprisonment imposed upon the revocation of . . .
supervised release shall be ordered to be served consecutively to any
sentence of imprisonment that the defendant is serving, whether or not
the sentence of imprisonment being served resulted from the conduct that
is the basis of the revocation of probation or supervised release.
Section 5G1.3(b) gives the court the authority to adjust a sentence if the court
determines a period of imprisonment served on an undischarged imprisonment term
will not be credited by the Bureau of Prisons and the sentence for the instant offense
is ordered to run concurrently to the remainder of the undischarged term of
imprisonment. “[S]ection 5G1.3(b)(2) does not prohibit the district court from
exercising its statutory authority to impose a consecutive sentence.” United States v.
Benson, 888 F.3d 1017, 1019 (8th Cir. 2018) (citing United States v. Martinez
Rodriguez, 508 F. App’x 573, 575 (8th Cir. 2013)). The district court did not err
when it imposed a consecutive sentence on the federal revocation case. Further, the
district court acted within its discretion when it declined to account for the six month
state sentence because it found they were separate crimes. See United States v.
Mathis, 451 F.3d 939, 941 (8th Cir. 2006) (noting the district court’s wide discretion
to run a federal sentence consecutive to an undischarged state offense).
Upon our careful review of the record, we find no error in the calculation of the
Guidelines range in Peithman’s case. The district court did not abuse its discretion
when it imposed the sentences it did.
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B. Sharon Elder’s Sentence
Elder argues the district court erred when it based its sentence upon acquitted
conduct, in determining the applicable base offense level, in failing to depart or vary
from the Guidelines, and in imposing a substantively unreasonable sentence. The
district court found Elder’s base offense level was 24, using the cross-reference to
U.S.S.G. § 2D1.1(a)(5) and the drug quantity table. Like Peithman, the court applied
a two-level enhancement under U.S.S.G. § 2D1.1(b)(12) for maintaining a premises
for the purpose of distributing a controlled substance. A total offense level of 26 and
criminal history category I resulted in an advisory Guidelines sentencing range of 63
to 78 months. The court treated Elder similarly to Peithman and varied two-levels
downward for the same reasons it did in Peithman’s case, as discussed in the previous
subsection. Elder’s advisory Guidelines sentencing range was 51 to 63 months. Elder
was sentenced to concurrent 63 month terms of imprisonment on Counts IX, XI, and
XII and concurrent 36 months terms on Counts VIII and X–offenses that carried a
statutory maximum imprisonment term of 36 months.
For the same reasons that applied in Peithman’s case, as discussed in the
previous subsection, Elder’s challenges to the cross-reference and use of the drug
quantity table are without merit. Although the jury acquitted Elder of the substantive
offenses for distribution of controlled substances, the court may rely on acquitted
conduct at sentencing. Roberts, 881 F.3d at 1053. The evidence presented at trial
established that the primary sale of goods at Island Smokes was the sale of
“potpourri.” The court properly applied § 2D1.1(b)(12).
Elder’s within-Guidelines range sentence is presumptively reasonable.
Washington, 893 F.3d at 1080. We find no error by the district court in calculating
the Guidelines or applying the Guidelines in Elder’s case. We find the district court
did not abuse its discretion when it refused to grant a more substantial downward
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variance or a downward departure. Elder suggests her sentence is substantively
unreasonable, but she cannot point to anything in particular to rebut the presumption
of reasonableness to a within-Guidelines-range sentence like this one. Her age,
alleged poor health, hardship caused by incarceration, and conduct giving rise to the
convictions were all considerations brought to the district court’s attention. The
district court did not err or abuse its discretion when sentencing Elder.
III. Conclusion
For the foregoing reasons, we reverse the money judgment imposed jointly and
severally under 21 U.S.C. § 853 in the amount of $117,653.57 and remand for further
proceedings consistent with this opinion, but affirm the convictions and sentences in
all other respects.
______________________________
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