United States v. Spirito

• Decision Date: 31 May 2022
• Docket Number: 20-4393
• Citation: 36 F.4th 191
• Parties: UNITED STATES of America, Plaintiff - Appellee, v. Kenneth R. SPIRITO, Defendant - Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

36 F.4th 191

UNITED STATES of America, Plaintiff - Appellee,

v.Kenneth R. SPIRITO, Defendant - Appellant.

No. 20-4393

United States Court of Appeals, Fourth Circuit.

Argued: September 24, 2021

Decided: May 31, 2022

ARGUED: Erin Harrigan, GENTRY LOCKE, Richmond, Virginia, for Appellant. Brian James Samuels, OFFICE OF THE UNITED STATES ATTORNEY, Newport News, Virginia, for Appellee. ON BRIEF: Raj Parekh, Acting United States Attorney, Alexandria, Virginia, Lisa R. McKeel, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Newport News, Virginia, for Appellee.

Before GREGORY, Chief Judge, MOTZ, and THACKER, Circuit Judges.

Reversed and vacated in part, affirmed in part, and remanded by published opinion. Chief Judge Gregory wrote the opinion, in which Judge Motz and Judge Thacker joined.

GREGORY, Chief Judge:

In 2012, Kenneth R. Spirito and members of the Peninsula Airport Commission began searching for an airline carrier that would bring low-cost air service and attendant passenger traffic to Newport News-Williamsburg International Airport. They came upon a start-up airline called People Express; but People Express had trouble securing funding. So Spirito spearheaded an effort to use restricted state and federal funds as collateral to secure a bank loan for People Express. After People Express defaulted on the loan and millions of dollars were lost, Spirito was indicted, tried, and convicted of federal program fraud, money laundering, and perjury. On appeal, Spirito maintains that there was insufficient evidence to support conviction on some counts, as well as that the district court erred by refusing to give a particular jury instruction, excluding a certain piece of evidence, and entering a forfeiture money judgment without notice. Finding one of these arguments persuasive, we reverse the conviction on Count 19 (a federal program fraud charge for three credit card transactions), and affirm the district court's judgment of convictions and sentences as to the other counts.

I.

A.

Kenneth R. Spirito served as Executive Director of the Newport News-Williamsburg International Airport from 2009 to 2017, and the Peninsula Airport Commission ("PAC")—made up of six individuals appointed by the City of Newport News and City of Hampton—serves as the airport's governing body.¹ In his role, Spirito executed the decisions of the PAC and oversaw the airport's daily operations.

The airport receives funds from at least five government programs (individually and collectively, "PAC funds"). State Entitlement funds are subject to Virginia state law and are regulated by the Virginia Department of Aviation ("DOAV"). These funds can be used for capital projects, and the airport must report its use annually via Entitlement Utilization Reports. The Federal Aviation Administration ("FAA") oversees the remaining four programs: (i) the Airport Improvement Program requires airport revenue to cover operating and capital needs; (ii) "passenger facility charges" may be used for FAA-approved airport development projects and the airport must submit reports detailing its use against specific projects; (iii) Small Community Air Service Development ("SCASD") funds are reimbursable grants for marketing and air service development after the incursion of expenses related to flights operating at a loss; and (iv) the Regional Air Service Enhancement Group ("RAISE") provides $700,650 in matching funds for money the airport receives from the SCASD and such funds are to be placed in escrow. At trial, all state and federal regulators testified that, under relevant regulations, manuals, and policies, PAC funds could not be used to collateralize a loan or subsidize an airline. Several witnesses testified that Spirito knew of these restrictions and that he could contact regulators to clear up any ambiguity regarding the restrictions.

In 2012, AirTran Airways stopped providing services at the airport. As a result, the airport lost low-cost air service and attendant passenger traffic. Hoping to abate the negative effect on the airport and local community, Spirito and PAC member James Bourey tried to identify and recruit a new air service provider. Eventually, they came upon People Express. At the time, People Express was not operational, but it obtained terminal space rent free at the airport with plans to make the airport its headquarters and start flying by the fall of 2012. But it could not attract investors, so People Express remained grounded.

As 2014 began, People Express still had no planes in the air. It planned a deal with another airline—Vision Airways—to lease planes and crew for use under the People Express name. This deal required People Express to raise at least $10 million. The airline eventually applied for funding from TowneBank, a regional bank headquartered in Virginia. Uninterested in giving People Express a loan because of its lack of tax returns, lack of profitability, and significant debts, TowneBank decided in May 2014 that it would extend a $5 million loan if the airline procured a guarantor and a third-party source of cash collateral. TowneBank required the cash collateral to be placed in accounts with the bank. Once these accounts were funded, the money could not be removed without the bank's approval.

Soon after, Spirito told Bourey and People Express CEO Jeff Erikson that he had a way to make it happen: the loan could be secured using PAC funds. On June 5, Spirito emailed TowneBank confirming the creation of three collateral accounts, providing the titles of the accounts, and noting the total funds that would be put into each account. Spirito met with Renee Carr, the airport's Director of Finance, and instructed her on how to fund the collateral accounts, providing handwritten notes detailing which funds would go into which accounts. When Carr expressed concern about the airport guaranteeing a private loan for People Express, Spirito asked, "Well, do you know what it takes to start an airline?" J.A. 1658.

About two weeks later, it became official: then-PAC Chairperson LaDonna Finch executed various contracts on behalf of the PAC to guarantee performance of a $5 million line of credit issued by TowneBank to People Express. PAC members testified that they did not fully understand the implications of or appreciate that PAC funds would be used as collateral for the loan.² And they relied on Spirito for advice and recommendations related to the management of PAC funds. As Spirito confirmed during cross-examination: "[The PAC] executed the [loan] agreement .... The funding was my idea."³ J.A. 2103.

The testimony of Special Agent Christopher Waskey, as well as the bank records introduced at trial, revealed which PAC funds were used to populate each collateral account. Counts 1-6 of the superseding indictment, charging misapplication of funds in violation of 18 U.S.C. § 666(a)(1)(A), relate to Spirito directing the initial transfer of PAC funds into the collateral accounts in June and July 2014:

• Count 1: $720,000 in State Entitlement funds;

• Count 2: $1,280,000 million in airport revenue;

• Count 3: $700,650 in RAISE funds;

• Count 4: $565,000 in airport revenue;

• Count 5: $385,000 in Passenger Facilities Charges; and

• Count 6: $460,119.37 in State Entitlement funds.

Counts 7-11, also charging misapplication of funds in violation of 18 U.S.C. § 666(a)(1)(A), relate to Spirito directing the transfer of additional PAC funds into the collateral accounts in September, October, and December 2014, as well as January and April 2015:

• Count 7: $148,213.96 in State Entitlement funds;

• Count 8: $26,000 in Passenger Facilities Charges;

• Count 9: $666,666.66 in State Entitlement funds;

• Count 10: $13,000 in Passenger Facilities Charges; and

• Count 11: $249,312.79 in State Entitlement funds.

In November 2014, People Express fell behind on the interest payments and were without funds to catch up. TowneBank turned to the PAC, seeking the money owed. Between December 2014 and April 2015, Spirito authorized a series of transfers from the collateral accounts to make interest and principal payments on the loan. These transactions support Counts 12-17 of the superseding indictment, charging money laundering in violation of 18 U.S.C. § 1957.

But ultimately, the $5 million loan was not enough to keep People Express in the air. People Express drew down the entire line of credit by August 2014 (one month after the loan's inception), suspended service in September 2014, and defaulted on the loan in January 2015. In early 2015, TowneBank called the loan and cleaned out the collateral accounts to satisfy People Express' debt.

B.

Evidence adduced at trial suggested that Spirito, at the time he ordered the collateral accounts funded and after, concealed the fact that PAC funds were used to guarantee a commercial loan.

For example, the titles Spirito gave to each collateral account—"State Entitlement," "SCASD," and "RAISE"—did not reflect the PAC funds placed into the accounts. J.A. 1666; see also J.A. 36–37. The "State Entitlement" account contained State Entitlement funds, airport revenue, and passenger facility charges. See J.A. 1664, 1670, 1875, 2017. The "SCASD" account contained airport revenue. J.A. 1664–65. And the "RAISE" account contained RAISE funds and passenger facility charges. J.A. 1669.

In one instance, in the fall of 2014, Spirito instructed airport staff to delay submitting audited financial statements to the City of Newport News because he was concerned that the loan guaranty would be reflected as a potential liability.

In another instance, in May 2014, Spirito submitted a discretionary funds application to the DOAV, but did not tell the state that, at the same time, State Entitlement funds were being committed as collateral for a loan. And Spirito did not include the loan guaranty in the airport's 2014 Entitlement Utilization Report.

The airport did not file its 2015 and 2016 Entitlement Utilization Reports by the relevant deadlines. After several...