United States v. Knight

• Decision Date: 01 September 2015
• Docket Number: No. 14–2651.,14–2651.
• Citation: United States v. Knight, 800 F.3d. 491 (8th Cir. 2015)
• Parties: UNITED STATES of America, Plaintiff–Appellant v. Kenneth Vaughn KNIGHT, Defendant–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

800 F.3d 491

UNITED STATES of America, Plaintiff–Appellant

v.Kenneth Vaughn KNIGHT, Defendant–Appellee.

No. 14–2651.

United States Court of Appeals, Eighth Circuit.

Submitted: June 12, 2015.

Filed: Sept. 1, 2015.

Stephan E. Oestreicher, Jr., U.S. DOJ, argued, Washington, DC., for appellant.

David R. Matthews, argued, Rogers, AR(Kimberly R. Weber, Sarah L. Waddoups, on the brief), for appellee.

Before GRUENDER, BEAM, and BENTON, Circuit Judges.

Opinion

BEAM, Circuit Judge.

A jury convicted Kenneth Vaughn Knight of conspiracy to commit bankruptcy fraud, in violation of 18 U.S.C. §§ 371 and 157 ; aiding and abetting bankruptcy fraud, in violation of 18 U.S.C. §§ 152(7) and 2; aiding and abetting the making of a false statement in relation to a bankruptcy case, in violation of 18 U.S.C. §§ 152(3) and 2; and five counts of aiding and abetting money laundering, in violation of 18 U.S.C. §§ 1957 and 2. Knight subsequently filed a timely motion for judgment of acquittal or new trial on all counts of conviction. The district court¹ granted Knight a new trial on the conspiracy, bankruptcy fraud, and money laundering counts, granted his motion for judgment of acquittal on the false statement count, and conditionally granted him a new trial on the false statement count in the event we were to reverse the court's judgment of acquittal. The government appeals. We reverse the district court's judgment of acquittal on the false statement charge but affirm its decision to grant Knight a new trial on all counts of conviction.

I. BACKGROUND

Knight is a licensed attorney, and the charges against him stem from actions he took in connection with his representation of a client, Brandon Barber, during a time period from early 2008 through 2010. On July 31, 2009, Barber, with Knight as his attorney, filed for Chapter 7 bankruptcy. Over the next several months, Barber filed multiple supplements to his bankruptcy petition that the government alleged contained blatantly false information designed to conceal Barber's assets from his creditors and the bankruptcy court. Of particular note, Barber claimed in his Statement of Financial Affairs (SOFA) that his income for 2008 was approximately $4,000. The government, however, contends that in 2008 Barber earned several million dollars of personal income from several real estate deals and that he passed roughly $1.2 million of this money through Knight's Interest on Lawyer's Trust Account (IOLTA) for the purpose of hiding the income during Barber's bankruptcy proceeding. Over the course of a nine-day trial, the government presented testimony from dozens of witnesses and introduced substantial documentary evidence in an effort to prove that Knight knowingly helped Barber hide his assets prior to and during the bankruptcy proceeding. However, in its order granting Knight a new trial, the district court exhaustively discussed and weighed the government's evidence and ultimately concluded that the evidence presented “largely invited only speculation and conjecture” and was plagued by gaps that “were too large to be reasonably filled by inference without leaving some doubt as to the correctness of the verdict.”

A. Barber's and Knight's Pre–Bankruptcy Activities

During the mid–2000s Barber was a high profile figure in the northwest Arkansas real estate market and was known for his lavish lifestyle. In 2007, Barber's real estate practice began to crumble due to the combination of a weak real estate market and poor business decisions by Barber. Barber temporarily kept his various businesses, including the Barber Group² and Lynnkohn, LLC (Lynnkohn),³ afloat largely through loans. However, because Barber had no way to repay the loans, he quickly found himself deeply mired in debt. Barber's dire financial situation became public in late 2007, when Legacy National Bank of Springdale, Arkansas (Legacy Bank), initiated foreclosure proceedings in state court related to a $16.7 million loan it made to Lynnkohn to finance the construction of a high-rise condominium building in downtown Fayetteville, Arkansas (the “Legacy building”). Barber was a personal guarantor on the loan and was named as a party to the foreclosure action. In the wake of the Legacy Bank foreclosure action, numerous creditors began to sue Barber and/or his companies.

In January 2008, Barber hired Knight to help advise him on various options available to Barber to resolve his financial problems, including bankruptcy.⁴ Barber decided not to immediately file for bankruptcy, and several government witnesses testified that Barber was quite adamant that he intended to resolve his debts and avoid bankruptcy. The record indicates that Barber quickly racked up substantial legal fees as Knight represented Barber in numerous lawsuits against Barber and his various entities, particularly Lynnkohn. Knight subsequently agreed to represent Barber for a monthly fee of $17,000. The record indicates that in 2008 Barber and/or his business entities paid Knight over $200,000.

One of the first legal matters that Knight helped Barber address was the Legacy Bank foreclosure action. In late February 2008, Knight sent Barber an email in which Knight suggested that they use a potential bankruptcy filing as a bargaining chip in negotiating down the Legacy Bank debt. Around the same time, Knight sent an email to Barber in which he encouraged Barber to have his personal property appraised. Knight further indicated that they should let the “WHOLE WORLD” know about the appraisal because this would signal that he was considering bankruptcy, which would strengthen his negotiation position with creditors. There is also evidence that in early 2008, Barber, Knight and several of Barber's business partners discussed the possibility that Barber might eventually have to file for bankruptcy in order to “protect himself.” At some point, Knight also advised Barber to empty out accounts he held with banks to which he owed money.

1. Real Estate Transactions and Barber's Use of IOLTA

Between March 2008 and October 2008 Barber and/or his entities participated in three real estate transactions that netted income or loan proceeds. These transactions are relevant primarily due to Knight's (seemingly) limited involvement in them and because some of the proceeds derived from these deals passed through Knight's IOLTA. Barber also made additional uses of Knight's IOLTA that are discussed in more detail below.

In March 2008, Barber participated in a complicated transaction (the “Ballpark Transaction”) involving a forty-acre tract of property (the “Ballpark Property”) located near the ARVEST baseball stadium in Springdale, Arkansas. The Ballpark Transaction was a “land flip” deal in which Barber, through one his entities, EIA International, LLC (EIA), purchased the Ballpark Property and on the same day sold the property at a $1.2 million profit to a third-party business entity owned by Barber's associate, Bob Gaddy. Gaddy received roughly $435,000 of EIA's profit, and EIA also agreed to cover some of the loan costs and other expenses that Gaddy's entity incurred in purchasing the property. The remaining proceeds from the Ballpark Transaction were the subject of a series of complicated deals EIA entered into with Epsilon Investments, LLC (Epsilon), which was a business entity partially owned by Barber's childhood friend, James Van Doren. Barber apparently wanted to generate a loss to offset the gain he anticipated receiving from the Ballpark Transaction. He tried to accomplish this goal via a series of debt-shifting moves involving Epsilon, EIA, and other entities that Barber owned. By the time the dust settled, Epsilon and EIA had executed a settlement agreement and an escrow agreement (the “Escrow Agreement”) that required $688,937 of the Ballpark proceeds be placed in escrow (the “Escrowed Funds”). Roughly $122,000 of the Escrowed Funds were to be paid out to Epsilon and Van Doren. The remaining funds were to be disbursed to EIA in allotted amounts after EIA completed and sold four properties that were the subject of a separate contract between Epsilon and a different Barber-owned entity.

The record contains scant evidence of Knight playing any role in negotiating or structuring the Ballpark Transaction.⁵ Instead, another attorney, Ken Hall, created EIA, structured and negotiated the Ballpark Transaction as well as the various side deals between EIA and Epsilon that Barber used to generate a loss. Hall was also slated to be the agent for the Escrowed Funds. However, on the day before the Ballpark Transaction was scheduled to close, Hall abruptly cut off his involvement with the deal based on some vaguely-defined concerns. Barber made arrangements for a third party to handle the closing and, at Hall's suggestion, asked Knight to serve as the agent for the Escrowed Funds. Knight agreed to do so and, at Barber and Van Doren's request, made a few minor changes to the Escrow Agreement. On March 31, 2008, the Ballpark Transaction closed. The closing documents indicate that $688,937 of the proceeds were paid out to Epsilon, in care of Knight Law Firm. The record further reflects that $688,937 was transferred into Knight's IOLTA and that, as agreed upon by Epsilon and EIA, Knight transferred approximately $90,000 to Epsilon and $32,000 to Van Doren.

On the same day that the Ballpark Transaction closed, First State Bank force-closed fourteen bank accounts held by Barber personally or by his entities. Barber apparently begged Knight to let him place the funds from the force-closed accounts, totaling approximately $53,000, into Knight's IOLTA because Barber had no other accounts available, was flying out to New York that same afternoon, and needed to pay several business expenses, including the Barber Group's payroll. Knight allowed Barber to transfer the funds into his IOLTA and, at the direction of Barber and one of Barber's employees, Christy Bennett, issued several checks, totaling approximately $14,000 to pay for a...