PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 01-4633
DARRELL GLENN PENDERGRAPH,
Defendant-Appellant.
Appeal from the United States District Court
for the Middle District of North Carolina, at Greensboro.
William L. Osteen, District Judge.
(CR-00-270)
Argued: October 1, 2004
Decided: October 28, 2004
Before LUTTIG and MICHAEL, Circuit Judges, and
Jackson L. KISER, Senior United States District Judge
for the Western District of Virginia, sitting by designation.
Affirmed in part; vacated and remanded in part by published opinion.
Judge Luttig wrote the opinion, in which Judge Michael and Judge
Kiser joined.
COUNSEL
ARGUED: Thomas Kieran Maher, Chapel Hill, North Carolina, for
Appellant. Lawrence Patrick Auld, Assistant United States Attorney,
OFFICE OF THE UNITED STATES ATTORNEY, Greensboro,
North Carolina, for Appellee. ON BRIEF: Anna Mills Wagoner,
United States Attorney, Greensboro, North Carolina, for Appellee.
2 UNITED STATES v. PENDERGRAPH
OPINION
LUTTIG, Circuit Judge:
Appellant Darrell Pendergraph was convicted by a jury of all
charges in a 20-count indictment. The charges included ten counts of
mail fraud in violation of 18 U.S.C. § 1341, eight counts of possess-
ing and uttering forged securities in violation of 18 U.S.C. § 513(a),
and one count each of transporting a person in interstate commerce
in connection with a scheme to defraud and of transporting forged
securities in interstate commerce in violation of 18 U.S.C. § 2314.
The district court sentenced Pendergraph to 60 months in prison. He
now appeals both his conviction and sentence.
I.
Pendergraph was the founder, owner, and president of a general
contracting firm, the Centech Building Corporation, which built and
renovated commercial buildings. J.A. 598. Some of Centech’s con-
tracts required it to acquire surety bonds issued by a third-party
insurer. Two categories of surety bonds are at issue in this case: per-
formance bonds, under which the issuer agrees to complete construc-
tion in the event that the contractor fails to complete the job, and
payment (or labor and material) bonds, under which the issuer agrees
to pay all debts associated with the contract should the contractor fail
to pay. J.A. 50-51. Insurance companies price and issue surety bonds
based on an assessment of the risk that the contractor will not perform
its obligations under the contract. J.A. 54.
When Centech required a surety bond, it would often ask Bill Mas-
sey, who owned an independent insurance agency, to acquire the
bond. J.A. 119. In the fall of 1998, Centech and Massey attempted to
find bonding for two jobs: the construction of a Food Lion grocery
store and a Sleep Inn motel. J.A. 133. Unable to acquire valid bonds
by the contract deadline, Massey drafted false performance bonds for
both of the projects and a false payment bond for the Sleep Inn proj-
ect, using documents he had obtained when he was a licensed inde-
pendent agent writing bonds for Cincinnati Casualty Company. J.A.
138-39. Pendergraph signed the false bonds that day, but nonetheless
continued to search for legitimate bonds. J.A. 242. In February 2000,
UNITED STATES v. PENDERGRAPH 3
Cincinnati Casualty Company received claims on the fraudulently
issued bonds, and discovered the scheme engaged in by Massey and
Pendergraph. J.A. 61-62. Centech was not permitted to finish either
of the two fraudulently bonded projects. J.A. 663.
At trial, the primary dispute was over whether Pendergraph knew
that the bonds were fraudulent, as required under the relevant statutes.
The jury convicted Pendergraph on all counts. At sentencing, the dis-
trict court enhanced Pendergraph’s sentence under section 2F1.1 of
the Sentencing Guidelines, which requires the district court to calcu-
late the "loss" attendant to Pendergraph’s scheme. The PSR calculated
the actual loss that Pendergraph inflicted on his victims to be
$1,431,176.69. J.A. 1067. However, in adjusting Pendergraph’s sen-
tence, the district court relied on an estimate of the reasonable amount
of possible loss to which Pendergraph had exposed the victims —
which the court concluded was $3,000,000. J.A. 1175-76. This
amount of loss resulted in a 13-point enhancement. U.S.S.G.
§ 2F1.1(b)(1)(N) (2000). The court also applied a four point enhance-
ment because Pendergraph received at least $1,000,000 in gross reve-
nue from the fraud and the fraud affected a financial institution.
U.S.S.G. § 2F1.1(b)(8)(b) (2000).
II.
Appellant raises several challenges to his conviction. Initially, he
claims that his conviction should be overturned because there was
insufficient evidence from which a jury could find beyond a reason-
able doubt that the bonds at issue in this case were "securities" for the
purposes of his convictions under 18 U.S.C. §§ 513(a) and 2314.
While appellant concedes that the statutory definition of "security"
includes a "bond," see 18 U.S.C. §§ 513(a), 2314, he claims that
Reves v. Ernst & Young, 494 U.S. 56, 65 (1990) forecloses the con-
clusion that the surety bonds in this case were, in fact, securities. In
Reves, the Court held that not all "notes" are included as "securities"
under 15 U.S.C. § 78c(a)(10) — even though the section defines "se-
curity" as including "any note" — because "Congress was concerned
with regulating the investment market, not with creating a general
federal cause of action for fraud." Id. The Court therefore held that
the phrase "any note" "must be understood against the backdrop of
4 UNITED STATES v. PENDERGRAPH
what Congress was attempting to accomplish in enacting the Securi-
ties Acts." Id. at 62-63.
Whether Reves should be extended to bonds in the context of the
definition of a security under 18 U.S.C. §§ 513(a) and 2314 — the
statutory provisions at issue in this case — is an open question.
Because Pendergraph did not raise the question at trial, we review
only for plain error. Fed. R. Crim. Proc. 52(b). In light of the plain
language of 18 U.S.C. §§ 513(a) and 2314, the fact that different stat-
utes are at issue in this case than were at issue in Reves, and the fact
that not even before this court does appellant advance the necessary
arguments to determine whether §§ 513(a) and 2314 are similar in
material respects to § 78c(a)(10), we cannot say that there is plain
error in Pendergraph’s conviction.
Appellant further contends that the district court interrupted him so
frequently during his testimony that he was prejudiced before the
jury. Because he did not object to the questioning at trial, we consider
whether the "judge’s comments were so prejudicial as to deny [the
defendant] an opportunity for a fair and impartial trial." United States
v. Godwin, 272 F.3d 659, 673 (4th Cir. 2001). The district court inter-
rupted Pendergraph and Massey, the government’s key witness, with
roughly equal degrees of regularity, and appellant points to no inter-
ruptions that constitute the "evidence of partiality or bias" that would
be necessary to find improper influence on the jury. United States v.
Parodi, 703 F.2d 768, 776 (4th Cir. 1983). Accordingly, we find this
claim to be without merit.
Appellant also challenges his conviction on the grounds that the
district court erred in excluding a stipulation by the government that
the phrase "grease the skids" in an e-mail that appellant sent was not
understood by the recipient as requesting illegal action. The e-mail
was sent by Pendergraph on January 8 — one week before the false
bonds were signed. J.A. 936. The government claims that it used the
e-mail only to show that Pendergraph was aware as of January 8 (and,
due to a follow-up e-mail request, as of January 15) that he did not
have a valid bond. Appellant points to nothing in the record to support
his contention that the government attempted to use the evidence to
prove that the defendant was willing to act improperly to obtain
bonds.
Decisions as to the admission or exclusion of evidence are within
the province of the district court, and any error in such decisions is
UNITED STATES v. PENDERGRAPH 5
subject to review under the harmless error test. United States v. Fran-
cisco, 35 F.3d 116, 118 (4th Cir. 1994). Given that the only evidence
or argument in the case regarding the meaning of the phrase "grease
the skids" was appellant’s own testimony that he did not intend to
request illegal action, J.A. 628, it is implausible that the error (assum-
ing that the exclusion was error at all) "substantially swayed" the
judgment. United States v. Brooks, 111 F.3d 365, 371 (4th Cir. 1997).
Therefore, any error was harmless. Id.
III.
Appellant challenges both the enhancement of his sentence under
section 2F1.1(b)(8)(B) and the loss calculation that determined his
sentencing enhancement under section 2F1.1(b)(1).
A.
Appellant disputes the district court’s conclusion that the offense
"affected a financial institution and the defendant derived more than
$1,000,000 in gross receipts from the offense," yielding a four point
enhancement. U.S.S.G. § 2F1.1(b)(8)(B) (2000). Pendergraph argues
that only Centech, rather than Pendergraph himself, derived the gross
receipts. Because this objection was not raised at sentencing, we
review it for plain error. See United States v. Grubb, 11 F.3d 426, 440
(4th Cir. 1993).
Appellant points to United States v. Castellano, 349 F.3d 483 (7th
Cir. 2003), wherein the Seventh Circuit refused to apply section
2F1.1(b)(8)(B) to a defendant who was the founder and principal
manager of the corporation receiving the receipts of the offense. Id.
at 485-86. Although this court has not directly addressed the applica-
tion of section 2F1.1(b)(8)(B) to a wholly owned corporation such as
Centech, it has suggested that application may be appropriate when
the defendant owns a controlling interest. See United States v. Colton,
231 F.3d 890, 911 (4th Cir. 2000) (refusing to attribute corporate
receipts to a shareholder under section 2F1.1(b)(8)(B) on the grounds
that the defendant "owned only a fifty percent — i.e., noncontrolling
— interest in [the corporation]" (emphasis added)). See also United
States v. Stolee, 172 F.3d 630, 631 (8th Cir. 1999) (upholding the dis-
trict court’s application of section 2F1.1(b)(8)(B) to a defendant who
6 UNITED STATES v. PENDERGRAPH
was the sole owner and president of the corporation that received the
fraudulently obtained funds). In light of these authorities, because
Pendergraph maintained a controlling interest in the corporation, and
thus controlled the fraudulently acquired funds, the district court’s
decision that an enhancement was appropriate under section
2F1.1(b)(8)(B) was not plain error.
B.
Appellant’s final claim is that the district court erred by enhancing
his sentence based on a finding of $3,000,000 of loss attendant to
Pendergraph’s scheme. Although we must "accept the findings of fact
of the district court unless they are clearly erroneous," United States
v. Romer, 148 F.3d 359, 371 (4th Cir. 1998), we review the district
court’s interpretation of the term "loss" under the Sentencing Guide-
lines de novo. United States v. Miller, 316 F.3d 495, 498 (4th Cir.
2003).
As explained supra, Pendergraph’s scheme enabled him to fraudu-
lently procure contracts. Therefore, in this case, loss must be calcu-
lated in accordance with comment 8(b) to section 2F1.1, which
addresses "Fraudulent Loan Application and Contract Procurement
Cases." The government appeared to concede as much at oral argu-
ment. Comment 8(b) provides that "[i]n fraudulent loan application
cases and contract procurement cases, the loss is the actual loss to the
victim (or if the loss has not yet come about, the expected loss). . . .
However, where the intended loss is greater than the actual loss, the
intended loss is to be used." U.S.S.G. § 2F1.1, cmt. n.8(b) (2000)
(emphasis added). Here, the loss had come about, so the "expected
loss" is not the applicable standard. Therefore, Pendergraph’s sen-
tence could be enhanced only on a finding of "actual loss" or "in-
tended loss." The PSR calculated the actual loss at $1,431,176.69.
J.A. 1067. And the district court found that there was no intended
loss: "I am not in any way indicating that I thought or think that
[Pendergraph] was intending not to build the building. Everything in
this case indicates that he was intending to build the building, and to
get it done." J.A. 1160. Instead, the district court based its adjustment
on the conclusion that the reasonable amount of loss the victim could
have faced was $3,000,000. However, in cases where the loss has
already materialized, comment 8(b) does not provide for damages
UNITED STATES v. PENDERGRAPH 7
based on the risk of loss to which the defendant exposes the victim,
but only based on intended or actual loss.1 While expected loss might
provide evidence of whether the defendant intended any loss, the
absence of intended loss renders expectations irrelevant under the
guideline. We therefore vacate the sentence imposed by the district
court and remand for a determination of the actual loss sustained by
the victims of Pendergraph’s scheme.2 In all other respects, the sen-
tence imposed is affirmed.
CONCLUSION
For the reasons stated herein, appellant’s conviction is affirmed.
The district court’s sentence enhancement of appellant’s sentence
under guideline 2F1.1(b)(8)(B) is likewise affirmed. However, the
sentence is vacated and the case remanded for the determination of
actual loss under guideline 2F1.1(b) and resentencing consistent with
that determination.
AFFIRMED IN PART;
VACATED AND REMANDED IN PART
1
In United States v. Baum, 974 F.2d 496 (4th Cir. 1992), decided under
the 1988 version of the guidelines, the court relied on the fact that "al-
though they intended to fully pay off the loan, [defendants] also intended
to (and did) induce the lender to unknowingly subject itself to a signifi-
cant and unappetizing risk — the risk that they would default on the
loan," to conclude that "the potential consequences of default . . . best
measure the ‘loss’" to which the victim was exposed. Id. at 499. Section
2F1.1 formerly referred to "estimated, probable, or intended" loss, lan-
guage which was deleted June 15, 1988. U.S. Sentencing Guidelines
Manual app. C, amend. 30. The precursor to comment 8 also referenced
"probable or intended loss that the defendant was attempting to inflict";
the reference to probable loss was deleted effective November 1, 1991.
U.S. Sentencing Guidelines Manual app. C, amend. 393 (emphasis
added).
2
Appellant also filed a supplemental brief claiming that his sentence
was enhanced based on factual findings made by the court, in violation
of Blakely v. Washington, 124 S. Ct. 2531 (2004). Because this court has
held that Blakely did not invalidate the federal sentencing guidelines, this
claim is without merit. United States v. Hammoud, 378 F.3d 426 (4th
Cir. 2004).