UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-4715
UNITED STATES OF AMERICA,
Plaintiff – Appellant,
v.
VICTORIA L. SPROUSE,
Defendant – Appellee.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Martin K. Reidinger,
District Judge. (3:07-cr-00211-MR-2)
Argued: October 25, 2012 Decided: April 8, 2013
Before DUNCAN and DIAZ, Circuit Judges, and Catherine C. EAGLES,
United States District Judge for the Middle District of North
Carolina, sitting by designation.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Amy Elizabeth Ray, OFFICE OF THE UNITED STATES ATTORNEY,
Asheville, North Carolina, for Appellant. William Robert
Terpening, NEXSEN PRUET, PLLC, Charlotte, North Carolina, for
Appellee. ON BRIEF: David A. Brown, OFFICE OF THE UNITED STATES
ATTORNEY, Charlotte, North Carolina, for Appellant. Peter C.
Anderson, ANDERSON TERPENING PLLC, Charlotte, North Carolina,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Victoria Sprouse was convicted of various offenses arising
from a mortgage fraud scheme. Prior to sentencing, the district
court ordered a new trial as to all offenses in light of the
Supreme Court’s decision in Skilling v. United States, 130 S.
Ct. 2896 (2010), concluding that its honest services fraud
instructions to the jury constituted plain error. On appeal,
the government contends that the district court misapplied the
burden of proof with respect to the “substantial rights” prong
of the plain error analysis. We agree with the government that
it was Sprouse’s burden to show that the instructional error
affected her substantial rights, which in this context required
Sprouse to show that the jury actually convicted her based upon
the error. Because Sprouse failed to satisfy that burden, we
reverse the district court’s order granting a new trial and
remand for sentencing.
I.
A.
Between 2000 and 2004, Victoria Sprouse provided services
as a closing attorney and notary public for approximately 210
real estate transactions in and around Charlotte, North
2
Carolina. 1 The transactions were in fact part of a conspiracy to
defraud mortgage lenders, from which Sprouse received nearly
$235,000 in attorney fees. The majority of these fraudulent
transactions were “house-flipping” schemes.
In a flip transaction, a property is sold by one party to
another and, on that same day or very shortly thereafter, re-
sold to a third party at a higher price. The first transaction
is a cash sale, and the inflated re-sale is made possible by a
loan from an unsuspecting lender. The loan is premised on an
inflated real-estate appraisal, falsified loan application
documents, and fake title opinions. Participants of the scheme
benefit either through the collection of fees for work
fraudulently performed, or through a cut of the “profits”
generated from the re-sale of the property at an inflated value.
To facilitate the financing and closing of the flip
transactions, Sprouse prepared and submitted false title
opinions, filed and recorded false deeds of trust, delayed
recording of documents to hide the source of subordinate
financing, falsely notarized and dated documents, and otherwise
falsely verified the accuracy of closing documents. An example
1
We summarize the evidence in the light most favorable to
the government, the prevailing party at trial. See United
States v. Jefferson, 674 F.3d 332, 341 n.14 (4th Cir. 2012).
3
of a typical house-flipping scheme will help illustrate
Sprouse’s role in the conspiracy.
In 2001, Karin Jo Sholtis purchased several properties and
immediately resold them to Stephen Hawfield. Sprouse acted as
the closing attorney on both halves of the flip transactions.
When Sholtis visited Sprouse’s office, Sprouse had her sign a
stack of documents for each transaction within minutes of one
another. Sprouse offered no explanation for what Sholtis was
signing, and told Sholtis not to date anything because Sprouse
“would fill everything in” herself. J.A. 284, 325-26. Although
Sholtis brought no money with her, Sprouse signed settlement
statements certifying that Sholtis brought a total of $504,000
in cash to the closing. At one point during the closing,
Sprouse asked Hawfield for payment and read a series of amounts
to him while Hawfield wrote checks for amounts that matched the
cash purportedly brought by Sholtis.
Later that year, Sprouse again acted as the closing
attorney as Sholtis purchased a number of properties and
immediately re-sold them to Hawfield. Although the closing
documents were purportedly signed by Sholtis, Hawfield actually
forged her signature on each of them, and Sprouse notarized each
of the deeds, attesting that Sholtis had personally appeared
before her to sign. Sprouse also signed settlement statements
certifying that Sholtis brought approximately $900,000 in cash
4
to the closing, when Sprouse knew that Hawfield actually
provided the money.
The flip scheme we describe is representative of the vast
majority of the 210 transactions that the government alleged to
be fraudulent. The remaining transactions were either primary
residence schemes or decorator distribution schemes. The
primary residence scheme was similar to a traditional house-
flipping scheme, except that the buyer on the second half of the
transaction would falsely represent on the loan application that
he would be using the property as his primary residence. As a
result, the buyer would receive more favorable financing terms.
The decorator distribution scheme, on the other hand, involved
the co-conspirators obtaining a loan with favorable terms by
falsely representing that “cash from buyer” was provided as down
payment. The cash purportedly paid by the buyer was actually
provided after closing and drawn from so-called interior
decorator disbursements from the lender. The interior
decorations were never performed, and the scheme allowed the
buyers to obtain loans with beneficial terms without providing
any down payment. Sprouse’s involvement was the same in these
schemes as in the Sholtis/Hawfield transaction, as she would
falsify documents and fail to perform her duties as an attorney
and notary public on closing documents.
B.
5
A federal grand jury indicted Sprouse on three counts of
mail fraud, nine counts of bank fraud, three counts of
conspiracy to commit fraud, 2 two counts of conspiracy to commit
money laundering, two counts of promotional money laundering,
one count of money laundering, four counts of perjury, and three
counts of obstruction of justice. 3 Each count of the indictment
that charged a scheme or artifice to defraud (fifteen in all)
included language accusing Sprouse of involvement with a scheme
“to defraud financial institutions and others of money and their
intangible right to honest services.” J.A. 32-80. In addition,
because the money laundering offenses relied upon the fraud
charges as predicate crimes, they too implicitly incorporated
the honest services language.
At trial, the government called Richard Poe. Poe, who at
the time of trial was an attorney, 4 was qualified as an expert on
2
Sprouse was charged with two counts of conspiracy to
defraud the United States, in violation of 18 U.S.C. § 371. The
indictment charged that the objects of the § 371 conspiracies
included mail, wire, and bank fraud, as well as making false
statements to banks. In a separate count, Sprouse was also
charged with conspiracy to defraud financial institutions and
others through mail, wire, and bank fraud, in violation of 18
U.S.C. § 1349.
3
The district court severed the perjury and obstruction of
justice charges for the purposes of trial. The government
ultimately dismissed those charges without prejudice.
4
As the district court noted in its attachment to its order
granting Sprouse’s motion for new trial, Poe was disbarred in
(Continued)
6
an attorney’s role and ethical duties in residential real estate
transactions. He explained the residential loan application
process and the closing attorney’s responsibilities related to
the transaction. Specifically, Poe testified that as closing
attorney, Sprouse’s duties included preparing the preliminary
title opinion, creating the HUD-1 settlement statement, and
reviewing the parties’ contract for accuracy. Poe also
testified that the closing attorney is presumed to represent
both the buyer and the lender, and serves as the “eyes and ears
of the lender,” notifying the lender if something occurs “at the
closing transaction that the lender needs to know about.” J.A.
147, 175.
After hearing testimony from twenty-seven other witnesses
over eight days, and considering 597 exhibits, the jury found
Sprouse guilty of all counts except one mail fraud offense. 5 In
June of 2010. There has been no suggestion, however, by either
the district court or Sprouse, that Poe’s testimony was not
truthful or accurate.
5
Sprouse testified in her own defense. She denied being
part of a conspiracy to defraud even while she admitted that a
number of the closing documents she had either signed or
notarized were false. According to Sprouse, she had been sloppy
and inattentive in her law practice, but she denied that she
intended to defraud anyone. Sprouse also called witnesses who
described how common it was to make a mistake in the processing
of closing documents. Finally, several other witnesses attested
to Sprouse’s honesty and integrity.
7
addition, the jury found, in special verdicts, that the objects
of the §§ 371 and 1349 conspiracies included mail fraud, wire
fraud, and bank fraud, and that the objects of the two § 371
conspiracies also included making false statements to banks.
C.
Prior to sentencing, the district court ordered the parties
to file briefs addressing the impact of the Supreme Court’s
decision in Skilling v. United States, 130 S. Ct. 2896 (2010),
“on any issue remaining in [the] case.” J.A. 2113-15. In
Skilling, a case decided three months after Sprouse was
convicted, a former Enron executive was charged with conspiracy
to commit securities and wire fraud. 130 S. Ct. at 2908. The
indictment alleged that the object of the conspiracy was to
deprive company shareholders of their right to Skilling’s honest
services. Id. Appealing his conviction, Skilling argued that
the honest services fraud statute was unconstitutionally vague,
and therefore violated his due process rights. Id. at 2928-29.
The Court agreed and confined the reach of § 1346
honest-services fraud to bribery and kickback schemes. Id. at
2931.
Before the district court, the government conceded that
because no bribery or kickbacks had been alleged in Sprouse’s
case, the court should not have instructed the jury that it
could convict Sprouse for fraud on an honest-services theory.
8
But because Sprouse did not object to the instructions at trial,
the government argued it was her burden to show a plain error
warranting relief. Applying the standard, the government
contended that Sprouse could not show that the jury in fact
convicted her based on the now-improper honest-services theory
because the government had presented ample evidence at trial to
support the convictions on a valid theory of pecuniary fraud.
Alternatively, the government argued that the motion for a new
trial should, at least, be denied as to the jury’s verdicts on
the § 371 conspiracy counts because the jury found that the
objects of each of the conspiracies included making false
statements to a bank, a separate offense from the mail and wire
fraud objects for which the court gave the honest-services
instruction.
Sprouse, on the other hand, disputed that the plain error
standard applied, insisting that the error required the court to
vacate her convictions and grant a new trial because it was
“impossible to know that the verdict was not based solely on the
invalid honest services” theory. J.A. 2122-27.
Reviewing the instructions for plain error, the district
court first determined that the honest services theory of the
case had “so permeated the proceedings . . . that it is
impossible to tell whether the jury may well have convicted the
Defendant based entirely on behavior that does not violate the
9
statute.” J.A. 2412. Second, the district court rejected the
government’s contention that the special verdict form
demonstrated that Sprouse’s two § 371 conspiracy convictions
rested on a separate, valid theory, and therefore should be
affirmed.
Highlighting statements from the government’s opening
statement and closing arguments, the court concluded that the
overarching theme of the case was honest services, rather than
pecuniary, fraud, and that nearly all of the evidence presented
by the government was probative of the honest-services theory
only. In the court’s view, the honest-services error also
affected the outcome of the trial due to a “spillover” of
prejudicial evidence that tainted the jury’s verdict on
otherwise sustainable counts. As a result, the district court
granted Sprouse’s motion for a new trial.
This appeal followed.
II.
The issue before us is whether the district court, in
granting Sprouse’s motion for a new trial, properly concluded
that Sprouse had shown plain error in the jury instructions.
The government’s principal argument is that the district court
misapplied the plain error standard by requiring Sprouse to show
only that it was impossible to tell whether the jury convicted
10
her based upon admittedly defective instructions, rather than
that Sprouse’s convictions actually resulted from the
instructional error.
According to the government, if the district court could
not tell whether the jury convicted Sprouse based on an
honest-services theory, then plain error review dictates that
the verdicts be affirmed because the government presented ample
evidence of a money-or-property theory of fraud that was
untainted by the Skilling error and upon which the jury could
have relied to convict. Relatedly, the government argues that
the district court should have been confident that the jury’s
verdicts rested on a proper theory of conviction because the
special verdicts on the § 371 conspiracy counts necessarily show
that the jury convicted Sprouse based on what the government
describes as a conventional “money-or-property theory of bank
fraud, wire fraud, and mail fraud.” Appellant’s Br. at 42.
Alternatively, the government argues that, at a minimum, the
district court erred in vacating Sprouse’s convictions on the
§ 371 conspiracy counts because the jury specifically found an
object of the conspiracy--the making of a false statement under
§ 1014--that was untainted by the honest-services evidence.
We agree with the government on its principal argument,
which is fully dispositive of this appeal. Accordingly, we do
not discuss further the government’s alternative contentions.
11
A.
Federal Rule of Criminal Procedure 33 provides that a trial
court may, on a defendant’s motion, grant a new trial “if the
interest of justice so requires.” We have observed that “a
court should exercise its discretion to grant a new trial
sparingly, and that it should do so only when the evidence
weighs heavily against the verdict.” United States v. Perry,
335 F.3d 316, 320 (4th Cir. 2003) (internal quotations omitted).
We review a district court’s decision to grant a motion for new
trial for abuse of discretion. United States v. Robinson, 627
F.3d 941, 948 (4th Cir. 2010). Furthermore, “[a] district court
abuses its discretion when it acts arbitrarily or irrationally,
fails to consider recognized factors constraining its exercise
of discretion, relies on erroneous factual or legal premises, or
commits an error of law.” United States v. Wilson, 624 F.3d
640, 649 (4th Cir. 2010).
In this case, Sprouse’s motion for a new trial was premised
on an instructional error to which she did not object. When a
defendant fails to object to a jury instruction, even if there
were no legal grounds for challenging the instruction at the
time it was given, a district court should deny a motion for a
new trial in the absence of plain error. Fed. R. Crim. P.
52(b); see also United States v. Pelisamen, 641 F.3d 399, 404
(9th Cir. 2011) (citing Johnson v. United States, 520 U.S. 461,
12
464-68 (1997)). To prevail, a defendant must demonstrate that
(1) there was an error, (2) the error was clear or obvious,
rather than subject to reasonable dispute, (3) the error
affected the defendant’s “substantial rights,” and (4) the error
“seriously affects the fairness, integrity, or public reputation
of the judicial proceedings.” United States v. Marcus, 130 S.
Ct. 2159, 2164 (2010); see also United States v. Olano, 507 U.S.
725, 732-35 (1993).
The government concedes, and we agree, that Sprouse met her
burden on the first two prongs of the test. Therefore, we turn
our attention to whether Sprouse has shown that the error
affected her substantial rights. Our analysis is governed by
United States v. Hastings, 134 F.3d 235 (4th Cir. 1998), where
we clarified the showing that a defendant must make to satisfy
the substantial rights prong in the context of jury
instructions.
The defendant in Hastings was convicted of multiple crimes,
including “using or carrying a firearm during and in relation to
a drug trafficking offense,” in violation of 18 U.S.C.
§ 924(c)(1). Id. at 237. A subsequent Supreme Court decision
rendered the jury instructions regarding the meaning of the term
“use,” as used in that count, erroneous. Id. Reviewing the
defendant’s conviction for plain error, we held that a defendant
is entitled to reversal “only upon a showing that ‘the error
13
does affect substantial rights,’ that is, that the error
actually affected the outcome of the proceedings.” Id. at 240
(quoting Olano, 507 U.S. at 735). We reiterated this high
standard throughout the opinion, stating that the burden
“requires [a defendant] to show that the jury actually convicted
him based upon [the erroneous instruction].” Id. at 243
(emphasis added). “Importantly, it is not enough for [the
defendant] to establish that it is impossible to tell whether
the verdict returned by the jury rested solely on the
misinstruction, for such a showing would establish only that the
error was not harmless.” Id. Applying this standard to the
defendant in Hastings, we held that he could not establish that
the instruction at issue had affected his substantial rights
because “in making the factual finding necessary to convict
under the erroneous instruction, the jury necessarily found
facts establishing [a conviction under the valid instruction].”
Id. at 244.
Sprouse attempts to complicate Hastings’s straightforward
holding, arguing that we intended to create a more lenient
“reasonable probability” standard. In support of this
contention, Sprouse notes that one of the cases cited by the
Hastings court uses language to that effect. See id. at 240
(citing United States v. McKinney, 954 F.2d 471, 476 (7th Cir.
1992)). Sprouse asks us to “modify” the Hastings holding by
14
“inserting ‘probably’ or ‘likely’ in place of ‘actually.’”
Appellee’s Br. 16. We decline that invitation, however, as it
would rewrite our clear and unmistakable holding in Hastings.
B.
In finding that the instructional error was plain, the
district court concluded that the error “so permeated the
proceedings” that it was impossible to tell whether, with
respect to any of the counts for which the court had given an
honest-services instruction, the jury had convicted Sprouse
based upon a valid theory. J.A. 2412. The district court also
believed that the “errors regarding honest service fraud also
could have affected the outcome of the trial by allowing for
‘spillover’ of prejudicial evidence into an otherwise
sustainable count.” J.A. 2425.
We conclude that the district court’s ruling misapplied our
holding in Hastings. We made clear there that a conviction
should not be reversed for plain error simply because it is
“impossible to tell” whether it rested on an invalid
instruction. See Hastings, 134 F.3d at 243. Moreover, although
Skilling held that an error occurs when a jury is instructed on
alternative objects of a conspiracy and returns a general
verdict that may rest on a legally invalid theory of
honest-services fraud, that case also teaches that the error
does not necessarily require reversal in every case. Skilling,
15
130 S. Ct. at 2934. Indeed, when Skilling itself was remanded
to the Fifth Circuit, that court affirmed the conspiracy
conviction despite the honest-services instructional error
because it found the error to be harmless. See United States v.
Skilling, 638 F.3d 480, 483-84 (5th Cir. 2011) (applying
harmless error review, as the defendant had objected to the
honest services instructions at trial), cert. denied, 132 S. Ct.
1905 (2012).
The district court here concluded that because it was
“impossible to tell” the ground upon which the jury rested its
verdicts, Sprouse had satisfied her burden under plain error
review. Sprouse, however, was required to demonstrate that her
convictions actually rested on the invalid honest-services
theory. The district court instead effectively flipped the
burden of proof by requiring the government to show that the
error was not harmless. 6 This mistake was an error of law that
we are bound to correct.
The district court also concluded that Sprouse’s
substantial rights as to all of the honest services-related
convictions were necessarily affected by the instructional error
6
We acknowledge that the district court’s order in certain
places purports to apply plain error review. But as we explain
infra, the district court’s analysis is flawed nonetheless in
that it fails to give proper weight to the overwhelming evidence
supporting the government’s theory of pecuniary fraud.
16
because “all of the evidence presented at [Sprouse’s] trial
related to honest services fraud.” J.A. 2415. We do not agree
with the district court’s view of the evidence.
It bears remembering that the government alleged two
theories in support of the fraud charges: conventional pecuniary
fraud and fraud based on a deprivation of honest services. The
government also charged Sprouse with conspiring to knowingly
make false statement to lenders. Many of the statements made by
the government at trial that the district court quotes as
examples of an overarching theme of honest-services fraud are
equally relevant to the charges of pecuniary fraud and making
false statements to lenders. See, e.g., J.A. 2417 (the
government’s opening statement describing Sprouse’s dishonesty),
2423 (the government’s closing arguments describing Sprouse’s
forging of documents and falsely notarizing warranty deeds).
Similarly, while it is certainly true that the evidence of
Sprouse’s misrepresentations and violations of her ethical
duties as an attorney and a notary public during real estate
closings was relevant to the government’s honest-services theory
of fraud, the evidence was equally probative of Sprouse’s
knowledge and intent to defraud with respect to the pecuniary
fraud theory, as well as Sprouse’s knowledge as to the counts
alleging a conspiracy to make false statements to lenders.
17
In fact, the absence of a mens rea was Sprouse’s principal
defense at trial. In her opening statement, during her trial
testimony, and again in her summation to the jury, Sprouse
admitted that she had been sloppy and inattentive when
processing closing documents, which led to her being taken
advantage of by others. Sprouse insisted nonetheless that she
lacked the specific intent to commit the charged offenses. For
that reason, evidence describing Sprouse’s failure to discharge
her duties as an attorney and notary public in residential real
estate transactions, while admittedly probative of the
government’s now-invalid honest-services theory, was also
relevant to show Sprouse’s intent and knowledge with respect to
those theories upon which a jury could properly convict.
Similarly, the district court’s characterization of the
pecuniary fraud theory as an “afterthought” we think ignores the
interrelation of the two theories. In our view, the conduct
undergirding each theory of fraud was largely the same, and the
facts supporting the banks’ losses and Sprouse’s pecuniary gain
were uncontroverted. As a result, the government’s evidentiary
presentation at trial rightfully focused on whether Sprouse had
the requisite intent when she engaged in the lies,
misrepresentations, and forgeries underlying both theories of
fraud.
18
As to that question, any reasonable jury concluding that
Sprouse intended to defraud lenders of her honest services would
necessarily have found that she intended to defraud those same
lenders of money. By way of example, in the Sholtis/Hawfield
transactions--which are representative of the other counts of
the superseding indictment alleging fraud--had the jury
convicted Sprouse of honest services fraud, it would have
necessarily found that Sprouse, with the intent to defraud,
falsely represented that Sholtis brought money to the closings,
and notarized Sholtis’s forged signatures, thereby denying the
lenders of her honest services while purporting to act in their
interest. Similarly, for the jury to have convicted Sprouse of
pecuniary fraud as to those same transactions, it must have
found that Sprouse, with the intent to defraud, falsely
represented that Sholtis brought money to the closings, and
notarized Sholtis’s forged signatures, thereby depriving the
lenders of a pecuniary interest (i.e., the loan proceeds and
attorney fees). Because the evidence showing that the banks
suffered a pecuniary loss as a result of the Sholtis/Hawfield
transactions was both overwhelming and uncontroverted, no
reasonable jury could have convicted Sprouse of honest services
fraud, but acquitted her of pecuniary fraud on these facts. We
find that the same holds true with respect to the other counts
alleging fraud.
19
In sum, because Sprouse failed to object at trial to the
Skilling instructional error, it was her burden to show that her
convictions actually rested on the invalid honest-services
instructions. Sprouse failed to meet that burden here, and the
district court abused its discretion in concluding otherwise.
III.
For these reasons, we reverse the order of the district
court granting Sprouse a new trial, reinstate her convictions in
toto, and remand the case for sentencing.
REVERSED AND REMANDED
20