United States v. Kenneth Fairley

Case: 17-60001 Document: 00514315299 Page: 1 Date Filed: 01/22/2018

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 17-60001

United States Court of Appeals

Fifth Circuit

FILED

UNITED STATES OF AMERICA, January 22, 2018

Lyle W. Cayce

Plaintiff - Appellee Clerk

v.

KENNETH E. FAIRLEY,

Defendant - Appellant

Appeal from the United States District Court for the

Southern District of Mississippi

Before WIENER, HIGGINSON, and COSTA, Circuit Judges.

STEPHEN A. HIGGINSON, Circuit Judge:

Appellant-Defendant Kenneth Fairley appeals his jury conviction for

theft of government property in violation of 18 U.S.C. § 641 (counts two and

three) and conspiracy to commit theft of government property in violation of

18 U.S.C. § 371 (count one). Fairley argues that: (1) the indictment, jury

instruction, and verdict form all misstated the elements of § 641; (2) the district

court erroneously admitted recorded conversations as non-hearsay statements

of a coconspirator; and (3) the district court improperly calculated Fairley’s loss

amount and imposed an inapplicable sentencing enhancement. Because errors

in the indictment, jury instruction, and verdict form directly undermined

Fairley’s defense, we VACATE Fairley’s conviction under counts two and three.

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We AFFIRM Fairley’s conviction under count one, and the district court’s

evidentiary and sentencing rulings. We REMAND to the district court to

determine whether Fairley’s sentence should change in light of the vacated

convictions. 1

I.

After a six-day trial, a jury found Kenneth Fairley guilty of two counts

of theft of government funds and one count of conspiracy to commit theft of

government funds. The charges arose from a conspiracy between Fairley and

another man, Arthur Fletcher, to submit inflated construction bills to a United

States government-backed affordable housing program. Fairley was sentenced

to 36 months imprisonment, concurrent as to all three counts. 2

i. The HUD Grant

The United States Department of Housing and Urban Development

(HUD) operates the HOME investment program, which aims to increase

availability of affordable housing. Through the HOME program, HUD partners

with “participating jurisdictions,” which in turn certify nonprofit Community

Housing Development Organizations (CHDOs). Certified CHDOs are eligible

to receive HUD grants for construction and renovation of affordable housing

units.

Fairley served as executive director of Pinebelt Community Services,

Inc., a nonprofit organization. In March 2010, the city of Hattiesburg,

Mississippi, a HUD participating jurisdiction, designated Pinebelt as an

approved CHDO. In August 2010, Hattiesburg and Pinebelt entered into a

1 See United States v. McRae, 795 F.3d 471, 483 (5th Cir. 2015) (“Our court’s

practice when one, but not all counts, within a multipart conviction has been vacated has

generally been to remand to allow the district court to resentence in the first instance.”).

2 Fairley was also sentenced to 36 months of supervised release and was

assessed a fine of $30,000, restitution of $60,223.95 and a $300 special assessment.

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contract under which Pinebelt agreed to develop three low-income housing

units, and Hattiesburg agreed to reimburse Pinebelt with up to $100,000 of

HOME program funds. The agreement also provided for Pinebelt to receive up

to $18,637.60 in operating funds in addition to the HOME funds. The parties

later amended the contract, and agreed that Pinebelt would instead renovate

two single family homes: 202 South Street and 127 East 5th Street.

In July and August 2011, Pinebelt submitted two “request[s] for funds”

to Hattiesburg totaling $98,000. The requests were signed by Fairley, and

ostensibly sought reimbursement for “services rendered and allowable

costs/expenditures” associated with rehabilitating the South Street and 5th

Street homes. After receiving the requests, Hattiesburg paid Pinebelt $98,000.

ii. The Government’s Case

At trial the government presented evidence that Fairley conspired with

his old friend Fletcher to defraud the government. 3 Fletcher owned Interurban

Housing and Development LLC. To apply for and receive HOME funds from

Hattiesburg, Pinebelt submitted documents suggesting that it had solicited

bids for the contract, selected Interurban as a contractor after a competitive

bidding process, and Interurban billed Pinebelt for $98,000 in construction

costs at the two properties. According to the government, these documents

were false, and Interurban did no work on the properties. Nonetheless, the

government investigation showed that Pinebelt sent $72,000 to Interurban

after receiving the $98,000 from the city.

An agent with the Office of the Inspector General testified that Fairley

admitted to him that Interurban did no work on the South Street and 5th

Street properties. The same agent testified that Fletcher admitted that

3 Fletcher was indicted with Fairley, but pled guilty to a related charge before

trial. Fletcher did not testify at Fairley’s trial.

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Interurban did not work on the Pinebelt projects, but that Fletcher had allowed

Fairley to use Interurban’s name to qualify for HUD grants.

An IRS agent testified that a review of Pinebelt’s finances showed that

Pinebelt spent only approximately $38,000 renovating the two properties. The

agent also documented several transfers, described as “seed money” necessary

to secure the contract with Hattiesburg, from a charity controlled by Fletcher

to Pinebelt. 4 The government presented evidence that the rehabilitation work

on the properties was shoddy, and the properties did not pass inspection until

years after Pinebelt was paid. Finally, the government played recorded phone

calls between Fairley and Fletcher. In the calls, Fletcher attempted to collect

money from Fairley, apparently provided to secure a second HUD contract with

Hattiesburg.

iii. Fairley’s Case

In his defense, Fairley disputed the government’s contention that

Interurban did no work, and described the transfers from Fletcher’s charity as

loans and donations. Fairley also challenged the government’s interpretation

of HOME program regulations and the government’s accounting. A HUD

consultant called by Fairley testified that CHDOs may properly be reimbursed

under HOME for operating expenses, including salaries. Fairley showed that,

although HUD did investigate and suspend Pinebelt, the investigation found

Pinebelt and Hattiesburg’s documentation to be “satisfactory” and HUD

eventually lifted Pinebelt’s suspension.

Fairley also called an accountant and former IRS agent who testified

that Pinebelt spent—including overhead costs—approximately $135,000

rehabilitating the South Street and 5th Street properties between August 2010

4 Fletcher’s charity raised money from third party donations. Fletcher profited

from the scheme by shifting this money to his company, Interurban.

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and August 2011. In addition, a construction contractor called by Fairley

estimated that the value of Pinebelt’s work on the two properties totaled

approximately $149,000. Finally, Fairley elicited testimony that at least ten

different contractors and between 15 and 20 volunteers worked on the two

projects, and that Interurban had, in fact, worked on the projects.

iv. The Verdict

The jury found Fairley guilty on all three counts. The verdict form read

as follows:

1. On Count 1 of the Indictment, conspiracy to commit theft

in violation of 18 U.S.C. § 371, we, the jury, find the Defendant

Kenneth E. Fairley, Sr.:

________ Guilty ________ Not Guilty

2. On Count 2 of the Indictment, knowingly and willfully

receiving, retaining, concealing, or converting any money,

property, or thing of value belonging to the United States having

an aggregate value of more than $1,000 in violation of 18 U.S.C.

§ 641, we, the jury, find the Defendant Kenneth E. Fairley, Sr.:

________ Guilty ________ Not Guilty

3. On Count 3 of the Indictment, knowingly and willfully

receiving, retaining, concealing, or converting any money,

property, or thing of value belonging to the United States having

an aggregate value of more than $1,000 in violation of 18 U.S.C.

§ 641, we, the jury, find the Defendant Kenneth E. Fairley, Sr.:

________ Guilty ________ Not Guilty

The jury placed an “X” next to “Guilty” for all three counts. For counts

two and three, the jury crossed out “retaining” and “concealing” on the verdict

form, leaving only “receiving” and “converting” as the operative verbs. When

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the verdict was read aloud by the district court’s clerk, the clerk omitted the

crossed out words. 5 Fairley did not object.

II.

Count one of the indictment charged Fairley with conspiracy to commit

theft of government property in violation of 18 U.S.C. § 371. Counts two and

three charged Fairley with theft of government property in violation of 18

U.S.C. § 641. Fairley argues that the indictment, jury instruction, and verdict

form all misstated the elements of § 641. Fairley asserts that: (1) the

indictment was legally insufficient as to counts two and three, (2) the jury

instructions permitted the jury to convict Fairley of a nonexistent offense

under counts two and three, and (3) the errors in counts two and three

invalidate his conspiracy conviction under count one. We begin by discussing

the structure of § 641, and then evaluate Fairley’s claims of error.

i. 18 U.S.C. § 641

Title 18, United States Code, Section 641 criminalizes two distinct acts.

The first paragraph of § 641 makes it a crime to:

(1) “embezzle[], steal[], purloin[], or knowingly convert[] to [the

defendant’s] own use or the use of another”;

(2) “a thing of value of the United States.”

18 U.S.C. § 641. Under the second paragraph of § 641, it is a crime to:

(1) “receive[], conceal[], or retain[]”;

(2) a thing of value of the United States;

(3) “with the intent to convert it to [the defendant’s] use or gain”;

(4) “knowing it to have been embezzled, stolen, purloined or converted.”

5 The transcript for both counts reads: “On Count 2[/3] of the indictment,

knowingly and willfully receiving or converting any money . . . .”

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Id. In short, paragraph one covers stealing from the United States and

paragraph two covers knowingly receiving stolen United States property. See

Milanovich v. United States, 365 U.S. 551, 554 (1961) (discussing § 641 and

distinguishing between “the provision of the statute which makes receiving an

offense” and “the provision relating to robbery”); United States v. Minchew, 417

F.2d 218, 219 (5th Cir. 1969) (per curiam) (“The Court [in Milanovich]

apparently concluded that Congress, by adding paragraph two to section 641

intended to reach a new group of wrongdoers, and not to multiply the offense

of the thieves themselves.”).

Even though § 641’s two paragraphs target separate acts, id., 6 the Fifth

Circuit’s pattern jury instruction for § 641 applies only to the first paragraph.

Fifth Circuit Pattern Jury Instruction (Criminal Cases) § 2.27 (2015) (“Theft

of Government Money or Property – 18 U.S.C. § 641 (First Paragraph)”). The

Ninth Circuit’s pattern instructions have separate entries, with different

elements, for paragraphs one and two. Compare Manual of Model Criminal

Jury Instructions for the District Courts of the Ninth Circuit § 8.39 (2010)

(“Theft of Government Money or Property (18 U.S.C. § 641)”) with id. § 8.40

(“Receiving Stolen Government Money or Property (18 U.S.C. § 641)”).

Further, the verbs animating § 641’s first two paragraphs are not

fungible. The verbs in paragraph one—embezzle, steal, purloin, and convert—

6 See also United States v. Zettl, 889 F.2d 51, 53 (4th Cir. 1989) (“Section 641

prohibits two separate acts. The first is to embezzle, steal, or knowingly convert United

States property and the second is to sell, convey, or dispose of United States property without

authority.”); United States v. Belt, 516 F.2d 873, 876 n.8 (8th Cir. 1975) (“In Milanovich the

defendant had been charged with the distinct crimes of larceny under paragraph (1) of 18

U.S.C. [§] 641 and receiving stolen property under paragraph (2) of [§] 641 based on the same

occurrence.”); United States v. Boyd, 446 F.2d 1267, 1272 (5th Cir. 1971) (stating, on appeal

of conviction under § 641, that a portion of the jury charge “was intended to inform the jury

of the difference between larceny and the crime charged—reception, retention and

concealment”).

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describe takings or possessions that are fraudulent or otherwise illegal.

Paragraph two’s verbs—receive, conceal, and retain—are broader, and cover

innocent as well as illicit acts.

The government disagrees. It argues that § 641 is divided into separate

paragraphs merely for historical reasons, and that this distinction has no

bearing on this case. The government purports to cite authority in support, but

its cases miss the mark. Some state generally that § 641 covers a broad range

of conduct. See Morissette v. United States, 342 U.S. 246, 266 n.28, 271 (1952)

(discussing § 641’s broad reach and stating that there is “considerable

overlapping in the embezzlement, stealing, purloining and knowing conversion

grouped in this statute” (emphasis added)); United States v. Dowl, 619 F.3d

494, 501 (5th Cir. 2010) (per curiam) (noting § 641’s “broad construction”).

Others address even more tangential issues. See United States v. Reagan, 596

F.3d 251, 253 (5th Cir. 2010) (“[E]ach distinct taking of funds constitutes a

separate violation under the statute.”); United States v. Bailey, 734 F.2d 296,

304 (7th Cir. 1984) (describing § 641’s “purpose” as “to provide a sanction for

intentional conduct by which a person either misappropriates or obtains a

wrongful advantage from government property”). And at least one undermines

the government’s position. See United States v. Bauer, 713 F.2d 71, 74 n.9 (4th

Cir. 1983) (“[T]he Government may elect to charge, and obtain a conviction

for, either theft or for receiving, concealing or retaining. That is to say that the

crimes are not mutually exclusive.”).

In short, nothing cited by the government causes us to doubt what is

clear from both the statutory text and prior cases: section 641’s first two

paragraphs describe two distinct criminal acts, with distinct elements.

Fairley’s indictment, jury instructions, and verdict form all, in different ways,

combined the first and second paragraphs of § 641 into a single purported

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offense. This erroneous cross-incorporation, and its effect on Fairley’s

conviction, is discussed below.

ii. The Indictment

Fairley challenges counts two and three of the indictment as

insufficient. 7 These counts charge that Fairley “did knowingly and willfully

retain, conceal, and convert to his own use or the use of another money of the

United States in an amount greater than $1,000.00.” In doing so, the

indictment borrows the verbs “retain” and “conceal” from paragraph two of §

641. But the indictment omits paragraph two’s remaining elements; it does not

charge that Fairley acted: (1) “with the intent to convert” the United States’

money to “his own use or gain”; or (2) “knowing [the money] to have been

embezzled, stolen, purloined, or converted.” 18 U.S.C. § 641. Fairley argues

that by combining verbs from § 641’s theft prong and receiving prong, the

indictment charged him with a non-existent “hybrid offense” that does not

encompass all elements of either criminal act.

Fairley concedes that he did not object to his indictment below, and we

therefore review the indictment’s sufficiency for plain error. United States v.

McGilberry, 480 F.3d 326, 328-29 (5th Cir. 2007). “This standard requires a

showing that there was (1) error, (2) that is plain, and (3) that affects

substantial rights.” Id. (internal quotations omitted). Even when these prongs

are met, “[t]his court retains discretion to correct reversible plain error and

will do so ‘only if the error seriously affects the fairness, integrity, or public

reputation of judicial proceedings.’” United States v. Dominguez-Alvarado, 695

7 Although Fairley argues that jury instruction errors as to counts two and three

undermine his conviction under count one, he expressly disclaimed any argument that count

one, as charged in the indictment, was independently insufficient.

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F.3d 324, 328 (5th Cir. 2012) (quoting Puckett v. United States, 556 U.S. 129,

135 (2009)).

“‘[T]he validity of an indictment is governed by practical, not technical

considerations,’ and ‘[t]he basic purpose behind an indictment is to inform a

defendant of the charge against him[.]’” United States v. Cooper, 714 F.3d 873,

877 (5th Cir. 2013) (second alteration in original) (quoting United States v.

Ramos, 537 F.3d 439, 459 (5th Cir. 2008) and United States v. Hoover, 467 F.3d

496, 499 (5th Cir. 2006)). “An indictment is legally sufficient if (1) ‘each count

contains the essential elements of the offense charged,’ (2) ‘the elements are

described with particularity,’ and (3) ‘the charge is specific enough to protect

the defendant against a subsequent prosecution for the same offense.’” Id.

(quoting United States v. Threadgill, 172 F.3d 357, 366 (5th Cir. 1999)).

Fairley’s argument goes to the first of these three requirements. 8

The Fifth Circuit’s pattern jury instruction for paragraph one of § 641

lists three elements:

First: That the money [property] [thing of value] described

in the indictment belonged to the United States government and

had a value in excess of $1,000 at the time alleged;

Second: That the defendant embezzled [stole] [knowingly

converted] such money [property] [thing of value] to the

defendant’s own use [to the use of another]; and

Third: That the defendant did so knowing the money

[property] [thing of value] was not his and with intent to deprive

the owner of the use [benefit] of the money [property] [thing of

value].

Fifth Circuit Pattern Jury Instruction (Criminal Cases) § 2.27 (2015)

(brackets in original); see also United States v. Pruett, 681 F.3d 232, 247 (5th

Cir. 2012) (per curiam) (approving instruction). Omitting the words “retain”

8 Any potential duplicity challenge is forfeited by Fairley’s failure to object

before the district court. See United States v. Stanford, 805 F.3d 557, 567 (5th Cir. 2015).

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and “conceal” from counts two and three of the indictment shows that the

remaining language largely tracks the first and second pattern elements: the

indictment describes “money of the United States in an amount greater than

$1,000.00” (first element), and charges that Fairley “did knowingly and

willfully . . . convert [it] to his own use or the use of another . . .” (second

element). 9

Fairley cites nothing suggesting that inserting additional words to

describe a defendant’s conduct may invalidate an otherwise competent

indictment. See United States v. Valencia, 600 F.3d 389, 432 (5th Cir. 2010)

(per curiam) (“We treat the allegation of additional facts beyond those which

comprise the elements of the crime as ‘mere surplusage.’” (quoting United

States v. Robinson, 974 F.2d 575, 578 (5th Cir. 1992))). The indictment charges

that Fairley “retain[ed], conceal[ed], and convert[ed]” government funds

(emphasis added). Fairley did not object to his indictment, did not ask for a

clarification, and does not argue that the superfluous verbs prejudiced his

defense. Rather, at least according to Fairley, “the Government pursued a

theory of ‘theft of Government property’ at trial, as opposed to the knowing

9 Fairley has forfeited any argument concerning the government’s wholesale

omission of the third element, which covers knowledge and intent. If he had raised the

argument, we would likely reject it. In United States v. Lester, we upheld an indictment

charging conversion of postal funds that “traced the exact language of the statute” but did

not include “a formal, express allegation of criminal intent.” 541 F.2d 499, 501 (5th Cir. 1976).

We reasoned that “[t]he term convert implies, by its very legal nature, some kind of willful

purpose and wrongful intent in the taking of property that does not belong to the converter.”

Id. at 501-02. Accordingly, the indictment “was sufficient to apprise the defendant of the

charges against her and it was sufficient to imply an allegation of wrongful intent.” Id.; see

also United States v. Rainey, 757 F.3d 234, 248 (5th Cir. 2014) (vacating dismissal of

indictment where the allegations did “not exactly recite that Rainey knew a congressional

investigation was pending, but the indictment as a whole fairly import[ed] the element.”

(alterations and quotation marks omitted)); United States v. Henry, 288 F.3d 657, 662 (5th

Cir. 2002) (“While it is true that the allegations may not necessarily encompass a finding of

knowledge, we have determined that a knowledge requirement may be inferred.”).

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receipt of stolen property[.]” There is no indication Fairley expected anything

else.

This court has often noted that the “minimal constitutional standards”

that an indictment must meet “do ‘not compel a ritual of words.’” Ramos, 537

F.3d at 459 (quoting United States v. Crow, 164 F.3d 229, 235 (5th Cir. 1999)).

Accordingly, “[a]n indictment need not precisely track statutory language.” Id.

(rejecting challenge to indictment charging that defendant “discharged” a

firearm when statute prohibited “use” of a firearm); Hoover, 467 F.3d at 500

(rejecting defendant’s “overly technical” argument “that the indictment failed

to allege a false statement because ‘complained’ and ‘told’ are not synonymous

terms”). Including two words from another offense—verbs that properly

describe Fairley’s alleged conduct, even if not an element of his offense—is not

plain error.

iii. Jury Instructions

Fairley argues that, by conflating elements of § 641’s theft and receiving

prongs, the jury instruction and verdict form incorrectly stated the law. A jury

instruction must: (1) correctly state the law, (2) clearly instruct the jurors, and

(3) be factually supportable. United States v. Phea, 755 F.3d 255, 266 (5th Cir.

2014). “[S]pecific jury instructions are to be judged not in isolation, ‘but must

be considered in the context of the instructions as a whole and the trial record.’”

Id. (quoting United States v. Simkanin, 420 F.3d 397, 406 (5th Cir. 2005)).

Verdict forms are considered part of the jury instruction, and we evaluate the

combined effect on the jury. See Jones v. United States, 527 U.S. 373, 393 (1999)

(“[A]lthough the verdict forms standing alone could have [confused the jury],

any confusion created by the verdict forms was clarified when considered in

light of the entire jury instruction.” (quoting United States v. Jones, 132 F.3d

232, 245 (5th Cir. 1998))); see also United States v. Cardinas Garcia, 596 F.3d

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788, 799 (10th Cir. 2010) (“When reviewing a jury verdict form, we must

determine whether it, along with the instructions read to the jury, as a whole

adequately stated the applicable law.”).

Fairley did not object below, and we therefore review the instruction for

plain error. 10 Jury instruction error “does not amount to plain error unless it

could have meant the difference between acquittal and conviction.” United

States v. McClatchy, 249 F.3d 348, 357 (5th Cir. 2001) (quotation marks

omitted); see also Henderson v. Kibbe, 431 U.S. 145, 154 (1977) (“It is the rare

case in which an improper instruction will justify reversal of a criminal

conviction when no objection has been made in the trial court.”). Still, “[w]hen

a jury instruction omits or significantly misstates an essential element of an

offense, the error may be severe enough to meet the plain-error standard.”

United States v. Brown, 553 F.3d 768, 785 (5th Cir. 2008) (quoting United

States v. Stone, 960 F.2d 426, 434 (5th Cir. 1992)).

The district court instructed the jury regarding count two as follows:

Count 2 of the indictment accuses defendant Kenneth E. Fairley,

Sr. of violating Title 18 of the United States Code, Section 641,

which makes it illegal to knowingly and willfully receive, retain,

conceal or convert any money, property or thing of value belonging

to the United States having an aggregate value of more than

$1,000.

10 Fairley contends that he is spared plain error review because the district court

rejected proposed alternative instructions. The record does not reflect this. More importantly,

even if Fairley did propose other language, “[a] party who objects to any portion of the

instructions or to a failure to give a requested instruction must inform the court of the specific

objection and the grounds for the objection . . . . Failure to object in accordance with this rule

precludes appellate review, except as permitted under Rule 52(b).” Fed. R. Crim. P. 30(d). At

oral argument, Fairley’s attorney suggested that trial counsel not only proposed alternative

language, but also specifically objected to the § 641 “state of mind” instruction at the charge

conference. As simultaneously acknowledged at oral argument, this assertion is not reflected

in the record before us. It also contradicts Fairley’s brief, which states “the defense did not

object at trial either to the instructions or to the language of the verdict form[.]”

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For you to find the defendant Kenneth Fairley guilty of this crime,

you must be convinced that the government has proven each of the

following beyond a reasonable doubt:

• First, that the money described in Count 2 of the indictment

belonged to the United States and had a value in excess of

$1,000 at the time alleged;

• [S]econd, that the defendant, Fairley, knowingly and

willfully converted, received, retained, concealed or converted

such money; and,

• [T]hird, that defendant Fairley did so with intent to convert

said money to his use or the use of another (emphasis and

bullets added). 11

The court’s charge for count three did not materially differ. These instructions

departed from the pattern language we have previously adopted for § 641’s

“theft” paragraph in two ways. First, the district court’s instructions replaced

some pattern verbs in the second element—embezzle, steal, and knowingly

convert—with verbs drawn from § 641’s “receiving” paragraph—receive,

retain, and conceal. 12 Second, the district court’s instructions replaced the

third element, which covers knowledge and intent, with a requirement that

11 The court later corrected its repetition of “converted.”

12 The district court made very clear that the jury did not need to find that Fairley

did all of these four acts, and could convict on a unanimous finding that Fairley did any one

of them:

The government does not have to prove all of these for you to return a guilty

verdict on these charges. Proof beyond a reasonable doubt on one is enough.

But in order to return a ver -- a guilty verdict, all of you must agree on the

same one that has been proven. All of you must agree that the government

proved beyond a reasonable doubt that the defendant knowingly and willfully

received money, property or thing of value belonging to the United States, or

all of you must agree that the government proved beyond a reasonable doubt

that the defendant knowingly and willfully concealed money, property or

thing of value belonging to the United States, or all of you must agree that

the government proved beyond a reasonable doubt that the defendant

knowingly and willfully retained money, property or thing of value belonging

to the United States, or all of you must agree that the government proved

beyond a reasonable doubt that the defendant knowingly and willfully

converted money, property or thing of value belonging to the United States.

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Fairley acted with “intent to convert,” apparently also drawn from § 641’s

“receiving” paragraph.

In mixing the elements of “stealing” and “receiving,” the district court

failed to adequately charge as to either. The instructions as given permitted

the jury to convict upon finding that Fairley: (1) knowingly and willfully

received United States money, (2) with intent to convert it to his use. The first,

“theft” paragraph of § 641 prohibits converting United States money, but says

nothing about receiving with intent to convert. And the second, “receiving”

paragraph prohibits receiving with intent to convert, but only when the

defendant acts “knowing [the money] to have been embezzled, stolen,

purloined, or converted.” 18 U.S.C. § 641; Schaffer v. United States, 221 F.2d

17, 23 (5th Cir. 1955) (“To be guilty of [receiving, concealing, or retaining

United States property under § 641], a defendant must himself have known

that the property had been stolen.”).

The verdict form repeated the error. It states:

On Count 2[/3] of the Indictment, knowingly and willfully

receiving, retaining, concealing, or converting any money,

property, or thing of value belonging to the United States having

an aggregate value of more than $1,000 in violation of 18 U.S.C. §

641, we, the jury, find the Defendant Kenneth E. Fairley, Sr.:

________ Guilty ________ Not Guilty

(emphasis added).

Like the jury charge, the verdict form used verbs from § 641’s receiving

paragraph, but omitted the requirement that the defendant knew the money

had been embezzled, stolen, purloined, or converted. But unlike the jury

instruction, the verdict form made no mention of an intent to convert.

The district court’s erroneous jury instruction was plain error. The

failure to require proof of each element of conviction affected Fairley’s

substantial rights. See United States v. Gaudin, 515 U.S. 506, 511 (1995) (“The

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Constitution gives a criminal defendant the right to demand that a jury find

him guilty of all the elements of the crime with which he is charged.”); see also

United States v. Savoires, 430 F.3d 376, 380 (6th Cir. 2005) (mixing elements

of 18 U.S.C. § 924 in jury instructions and indictment was plain error); United

States v. Wilkins, 253 F. App’x 538, 546-47 (6th Cir. 2007) (plain error where

“the instructions mixed the elements of the use or carry [of a firearm under 18

U.S.C. § 924] offense with those of the possession offense”). True, the jury

instructions permitted conviction only upon a finding that Fairley acted with

“intent to convert [government money] to his use.” And the resulting

distinction—between knowingly converting money and receiving, retaining, or

concealing money with intent to convert it—is slim. But Fairley built his

defense in the space between receiving and converting.

Fairley did not dispute at trial that he received government funds. As

his lawyer put it in closing: “Everybody agrees Pinebelt received the ninety-

eight from the city. We agree on that. Got it in blue.” Rather, Fairley argued

that he properly spent HUD funds on renovating the two properties. He called

several witnesses to support his theory that Pinebelt spent more money

renovating the two properties than it received from the government. Fairley

also disputed the government’s interpretation of what expenses were properly

reimbursable under the HOME Program. In short, Fairley sought to show that

the government got the benefit it sought in exchange for its $98,000.

Permitting the jury to convict on mere receipt with intent to convert therefore

directly undermined Fairley’s defense theory. 13

13 This discussion compares the jury’s actual instruction to a proper instruction

for conversion under paragraph one of § 641. The government has never argued that the

instructions were proper under a paragraph two receiving theory, which, as noted, requires

that the defendant acted “knowing [the government property] to have been embezzled, stolen,

purloined or converted[.]” § 641.

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Further, the effect of the jury instructions was compounded by errors in

the verdict form and indictment. When it began deliberating, the jury had been

provided three different recitations of the elements necessary to convict under

§ 641—instruction, verdict form, and indictment. Each of these differed from

the others, and none correctly stated § 641’s elements. All included verbs from

the receiving prong, but none included the requirement that the defendant act

knowing the property in question has been embezzled, stolen, purloined, or

converted. Only one of the three included the element of acting with intent to

convert the property.

The impact of these errors was also amplified by the government’s

argument to the jury. See United States v. Chagra, 807 F.2d 398, 402 (5th Cir.

1986) (“We review claimed deficiencies in a jury charge by looking to the entire

charge as well as the arguments made to the jury.”). The government brought

and tried this case under the mistaken belief that receiving, retaining, and

concealing government property is prohibited by § 641 even absent knowledge

that the property was embezzled, stolen, purloined, or converted. 14 In closing

argument, it differentiated between “theft of government money” as charged

in count one, and the “receiv[ing], retain[ing], conceal[ing], or convert[ing]”

offenses charged in counts two and three.

The government argues that these errors were cured by the jury’s

uninvited modification of the jury form. As noted, the jury crossed out

“retaining” and “concealing” on the verdict form, leaving only “receiving” and

14 In its brief before this court, the government confirms its belief that counts two

and three do not merely charge Fairley with theft of government money under § 641’s first

paragraph. The government asserts that “[t]he [Fifth Circuit] pattern instruction for § 641

addresses only the first paragraph of the statute and thus only a modified version would

apply to the charges in this case” (emphasis added). At oral argument, the government

appeared to still be unsure what crime Fairley was actually convicted of. When pressed, the

government’s attorney said: “I think that the best reading of the result is that [Fairley] was

guilty of conversion.”

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“converting” as the operative verbs in counts two and three. According to the

government, by crossing out “retaining” and “concealing,” the jury indicated

that they had unanimously found that Fairley both “received” and “converted”

government money. This, to the government, cures any issue with the

indictment or instructions, because knowing conversion is prohibited by

paragraph one of § 641 and the term appears in the indictment, instruction,

and verdict form.

The unprompted and unexplained verdict form modifications do not

dissuade us in our discretion from finding plain error here. “Federal courts

have long held that additional jury notations that are not directly responsive

to the jury charge and verdict form are surplusage, and are to be ignored.”

Great Pines Water Co. v. Liqui-Box Corp., 203 F.3d 920, 924 (5th Cir. 2000); see

also United States v. Ailsworth, 138 F.3d 843, 846 (10th Cir. 1998) (“Generally,

unnecessary or irrelevant statements in a verdict form may be disregarded as

surplusage.”). Applying this rule is particularly appropriate where, as here, no

inquiry was made by the district court concerning how or why the verdict form

was modified. Although the verdict was read aloud by the district court’s clerk

without the crossed out words, and the district court generally polled the jury,

the court did not ask who crossed out the form or how the decision to do so was

made. 15

The government’s argument that the cross-outs were, in fact, responsive

to the jury charge is belied by the transcript. As noted, the district court

15 We also observe that the government’s interpretation of the notes is not the

only plausible one. For instance, maybe the jury found that “retaining” and “concealing” were

not supported by the evidence, crossed them out, unanimously found that one of the

remaining verbs was present, realized they had a conviction, and concluded deliberations

without ever considering the final verb. Or maybe the foreperson made the alteration on his

or her own. Or maybe the jury did exactly what the government assumes. On this record, we

simply cannot know.

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explained at length that the jury did not need to find that Fairley received,

retained, concealed, and converted; they could convict on a unanimous finding

that Fairley did any one of the four acts. The trial judge never told the jury to

indicate which of the four acts supported its verdict or to cross out verbs they

did not find unanimously. Accordingly, affirming Fairley’s conviction based on

anything beyond the “X” next to “guilty” would give effect to “additional jury

notations that are not directly responsive to the jury charge and verdict form.”

Great Pines Water Co., 203 F.3d at 924.

In short, the elements of § 641 were confused by the government’s

argument, the indictment, the jury instructions, and the verdict form. The

combined error directly undermined Fairley’s defense theory and permitted

the jury to convict for a non-offense. This error seriously affected the fairness

and integrity of Fairley’s trial, and could have meant the difference between

conviction and acquittal. We therefore vacate Fairley’s conviction under counts

two and three. 16

iv. Count One

Fairley was also convicted of count one, which charged that Fairley

conspired to commit theft of government money in violation of § 641. Fairley

argues that his conviction on this count must be vacated as well. Fairley points

to no actual error in how count one was presented in the indictment, jury

instructions, verdict form, or government’s argument. Nor could he: all were

true to § 641’s theft prong. Rather, Fairley argues that because count one

16 Fairley also argues that the jury instruction impermissibly enlarged the

indictment by including “receiving” as one of Fairley’s criminal acts. Constructive

amendment, however, “occurs if the jury is permitted to convict on ‘an alternative basis

permitted by the statute but not charged in the indictment.’” United States v. Daniels, 252

F.3d 411, 414 (5th Cir. 2001) (emphasis added) (quoting United States v. Robles-Vertiz, 155

F.3d 725, 728 (5th Cir. 1998)). Because we find that the jury instructions misstated the law,

any constructive amendment is beside the point.

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rested on the same substantive offense as counts two and three, misstatements

of the elements supporting count two and three necessitate vacating count

one. 17 We hold that count one was distinct from the substantive counts and the

errors regarding counts two and three therefore do not extend to cause plain

error in Fairley’s conspiracy conviction.

The district court instructed the jury that the first element of count one

was “that the defendant and at least one other person made an agreement to

commit the crime of theft of government money, as charged in the indictment”

(emphasis added). The verdict form also described the offense as “theft” and

referenced the indictment. Count one of the indictment charged that Fairley

and Fletcher conspired to:

defraud the United States or commit offenses against the United

States as follows:

Embezzle, steal, purloin, or knowingly convert to their use or the

use of another any record, voucher, money, or thing of value of the

United States or an agency thereof, in violation of Section 641,

Title 18, United States Code (emphasis added).

Finally, as noted, the government’s closing argument distinguished between

“theft of government money” as charged in count one, and the “receiv[ing],

retain[ing], conceal[ing], or convert[ing]” offenses charged in counts two and

three. These repeated instructions made clear to the jury that count one—

17 Notably, Fairley’s opening brief devotes only a single sentence—with no

supporting authority—to arguing that errors in counts two and three invalidated count one.

Fairley does expand this argument in his reply brief, but still fails to cite authority. In our

independent analysis, we note that our court reversed a conspiracy conviction based on an

erroneous instruction in a separate but related substantive count. See United States v.

Smithers, 27 F.3d 142, 146 (5th Cir. 1994) (flawed jury instruction as to substantive offense

“also undermine[d]” related conspiracy charge). But Fairley may well not have cited Smithers

perceiving that it is inapposite because (1) Smithers preserved the error, and (2) there is no

indication that Smithers’ conspiracy count was in any way distinct from the flawed

substantive count. Id. at 144 n.4, 145-47.

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unlike counts two and three—charged Fairley with conspiring to steal, rather

than merely receive, government money.

Further, count one does not encompass the retention, concealment, and

conversion of government money charged in counts two and three. Although

count one describes the conduct that led to receiving the HUD grants

underlying counts two and three, actual receipt of those funds is not listed as

an overt act committed in furtherance of the conspiracy. The list of overt acts

includes the “seed money” transfers from Fletcher to Fairley, Fairley’s

submission of an engagement letter, and the later requests for funds. But it

omits actual receipt.

Given this separation, and the high threshold of plain error review,

Fairley’s conviction on count one stands.

III.

At trial, the government prominently featured tape recorded

conversations between Fairley and Arthur Fletcher. The district court

admitted Fletcher’s portion as non-hearsay statements by a coconspirator.

Fairley’s objection was overruled, and he now appeals.

A statement is not hearsay if “[t]he statement is offered against an

opposing party and . . . was made by the party’s coconspirator during and in

furtherance of the conspiracy.” Fed. R. Evid. 801(d)(2)(E). To introduce a

statement under this rule, the proponent must show by a preponderance of the

evidence: “(1) the existence of the conspiracy; (2) the statement was made by a

co-conspirator of the party; (3) the statement was made during the course of

the conspiracy; and (4) the statement was made in furtherance of the

conspiracy.” United States v. Hall, 500 F.3d 439, 443 (5th Cir. 2007). The

content of the challenged statement itself must be considered, but the

proponent cannot establish admissibility based on the statement alone. United

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States v. Nelson, 732 F.3d 504, 516 (5th Cir. 2013). “There must be

‘independent evidence’ establishing the conspiracy.” Id. (quoting United States

v. El-Mezain, 664 F.3d 467, 502 (5th Cir. 2011)).

Fairley argues that the government failed to establish that the

statement was made during the course of the conspiracy or in furtherance of

it. According to Fairley, the recorded statements were made in December 2012

and the conspiracy between Fairley and Fletcher ended in July 2011. Fairley

further argues that because the conversations chiefly concern Fletcher’s

attempt to recover money from Fairley, the two men were acting as adversaries

and could not have been speaking in furtherance of a joint conspiracy. We

review the district court’s ruling for abuse of discretion. United States v.

Robinson, 367 F.3d 278, 291 (5th Cir. 2004).

Fairley’s argument misunderstands the nature of the coconspirator

exception. Fairley focuses on the overt acts charged in the indictment as part

of the conspiracy, which run only until August 2011. But “the evidentiary rule

of conspiracy is founded on concepts of agency law” and therefore “differs from

conspiracy as a crime.” El-Mezain, 664 F.3d at 503 (quoting United States v.

Coe, 718 F.2d 830, 835 (7th Cir. 1983)). Accordingly, “a conspiracy [for the

purpose of hearsay exclusion] may be shown ‘merely by engaging in a joint

plan[ ] . . . that was non-criminal in nature.’” Nelson, 732 F.3d at 516 (second

alteration and omission in the original) (quoting El-Mezain, 664 F.3d at 502).

At trial, Fairley did not dispute that he worked with Fletcher to secure HUD

grants. The government introduced considerable evidence to support a finding

that Fairley and Fletcher were engaged in a joint venture, including signed

documents and a separate recorded conversation between Fletcher and a City

of Hattiesburg employee. 18

18 Fairley did not object to admission of this recording.

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Fairley and Fletcher’s recorded conversations themselves confirm the

continuing nature of the venture. Although contentious, the gist is Fletcher

trying to collect money that he advanced to Fairley in the expectation he would

be reimbursed with HUD funds. This underscores rather than negates the

ongoing nature of the venture: the two men had not yet concluded their joint

venture.

Furthermore, during the calls, Fairley repeatedly references plans to

continue working together in the future. He says:

• “I know that these three, that the four of us collectively [Fairley,

Fletcher, Pinebelt, and another person], gonna find a way to

complete the Fifth Street project and will find a way to complete the

Sixth Street projects, such that the city and [HUD] will be happy

with the process and happy with the money spent and the, and the

turn out of the project, and release the money.”

• “[T]his has always been a money making proposition even now, in

the future between [Interurban] and Pinebelt.”

• “[T]he next time when we, when do this . . . on the Sixth Street

house, . . . we gonna have an understanding before we get started.”

• “I’m gonna move forward Fletch. I have heard you loud and clear.

And, uh, I’m movin’ forward to get this stuff completed so we can be

on the same team. Get the monies paid back, that’s what I’m sayin’

to you. To get the monies that’s been allocated to us paid back.”

• “I just wanna make sure that as we do this thing now we goin’

forward. Now, I know there’s no [HUD] representative in this,

diggin’ in . . .” (emphasis added).

These statements, combined with the government’s ample evidence of the

existence of a conspiracy between Fairley and Fletcher, show that the

conspiracy remained in effect at the time the conversations were recorded.

Fairley’s argument that the statements were not made in furtherance of

the conspiracy also fails. We have repeatedly cautioned “that the ‘in

furtherance’ requirement is not to be construed too strictly lest the purpose of

the exception be defeated.” United States v. Cornett, 195 F.3d 776, 782 (5th Cir.

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1999). Furthermore, “statements [made] in order to encourage loyalty and

obedience among the conspirators [is] a purpose clearly in furtherance of the

conspiracy.” United States v. Flores, 63 F.3d 1342, 1377 (5th Cir. 1995).

Fletcher’s attempt to enforce his understanding of his bargain with Fairley is

therefore a furtherance. See United States v. Graham, 711 F.3d 445, 454-55

(4th Cir. 2013) (discussions concerning attempt to collect a drug debt were

made in furtherance of conspiracy).

Accordingly, we hold that the district court did not abuse its discretion

by admitting the challenged recordings.

IV.

Finally, Fairley contests two sentencing factors applied by the district

court. First, Fairley asserts that the court improperly calculated Fairley’s loss

amount. Second, Fairley maintains that the district court erred by enhancing

his sentence for abuse of a position of trust. Neither argument is persuasive.

i. Loss Amount

The district court’s loss-amount calculation is a factual finding reviewed

for clear error. United States v. Hebron, 684 F.3d 554, 560 (5th Cir. 2012). But

the court’s method of calculating those losses is an application of the guidelines

subject to de novo review. Id. The district court sentenced Fairley based on

intended loss, which exceeded HUD’s actual loss. See id. (“The applicable loss

is generally the greater of actual loss—which includes only reasonably

foreseeable harm resulting from the fraud—and intended loss—which includes

the harm intended to result from the offense.”). “[T]he guidelines emphasize

the deference that must be shown to the sentencing judge, who is in a unique

position to assess the applicable loss, so this court need only determine

whether the district court made ‘a reasonable estimate of the loss.’” Id. (quoting

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U.S.S.G. § 2B1.1 cmt. 3(C)); see also United States v. Izydore, 167 F.3d 213, 222

(5th Cir. 1999) (“[T]he amount of loss need not be determined with precision.”).

The court calculated Fairley’s intended loss amount by combining: (1) its

determination of the actual loss associated with the contract for the South

Street and 5th Street properties, and (2) its estimate of the intended loss on a

second HUD home renovation contract signed by Pinebelt in October 2011, but

later voided by HUD. Specifically, as to the completed August 2010 contract,

the court subtracted $37,776.05 in legitimate labor and materials expenses

from the total $98,000 received pursuant to the HUD grant and arrived at a

loss of $60,223.95. For the uncompleted October 2011 contract, the court

reduced the total value of that contract, $118,637.60, by 38.5%—consistent

with the proportion of grants received for legitimate expenses in the first

contract—for a loss of $72,962. In other words, the district court assumed for

loss calculation purposes that, had the October 2011 contract not been

rescinded, Fairley would have realized the same illicit gain as a percentage of

the contract amount as he had under the August 2010 contract. 19

Fairley contests both the district court’s method and its actual loss

calculation. Regarding the calculation, Fairley maintains that the court should

have credited his evidence concerning additional expenditures on the South

Street and Fifth Street properties. The court rejected Fairley’s evidence,

finding that it included overheard expenses that could not be reimbursed under

the terms of the contract, as well as expenses for storm damage repair after

the contract was completed. The court instead credited the testimony of an IRS

agent, who calculated Pinebelt’s total permissible costs under the contract as

$37,776.05. The district court’s choice to rely on the credible testimony of the

19

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agent and other government witnesses, rather than Fairley’s competing

experts, was not clearly erroneous. See United States v. Sotelo, 97 F.3d 782,

799 (5th Cir. 1996) (“Credibility determinations in sentencing hearings ‘are

peculiarly within the province of the trier-of-fact.’” (quoting United States v.

Sarasti, 869 F.2d 805, 807 (5th Cir. 1989))).

Fairley also argues that he should have received credit for the actual

value of the South Street and 5th Street properties. But Pinebelt was paid

pursuant to a grant program that took no interest in the properties to be

renovated. Although a later agreement between the City of Hattiesburg and

Pinebelt contemplated foreclosure, this agreement was signed several months

after Pinebelt was paid. Fairley presented no evidence that the City ever

foreclosed or took any ownership in the property, or that HUD, the victim,

would be reimbursed even if the city had. Accordingly, the district court

concluded that the value of the South Street and 5th Street properties was

“irrelevant.” This finding was not clearly erroneous.

As to the method of calculation, Fairley asserts that the district court

impermissibly speculated when it increased Fairley’s loss amount based on the

uncompleted October 2011 contract. See Nelson, 732 F.3d at 520 (“[T]he

calculation of intended loss cannot be ‘purely speculative.’” (quoting United

States v. Roussel, 705 F.3d 184, 201 (5th Cir. 2013))). But we have repeatedly

affirmed similar estimates based on unconsummated crimes. For instance, in

United States v. John, the defendant, a bank employee, provided customer

account information to associates who used the information to make

fraudulent charges. 597 F.3d 263, 279 (5th Cir. 2010). Although only four

accounts were charged, resulting in a total actual loss of $78,750, evidence

showed that John had printed and disseminated information for seventy-six

accounts. Id. The district court calculated John’s intended loss amount by

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aggregating the credit limits of all seventy-six accounts, a sum of nearly $1.5

million. Id. at 278-79. We found no reversible error. Id. at 281; see also United

States v. Jones, 533 F. App’x 448, 456-57 (5th Cir. 2013) (per curiam) (district

court did not err in “extrapolating the $2,000 loss [the defendant] intended to

inflict on the date of her arrest by an estimate of similar operations in which

she was found to have engaged”). Here, there is no reason to believe that—

after defrauding the government on one contract—Fairley and Fletcher

intended to play it straight on the second contract. Sentencing Fairley based

on a reasonable expected loss amount under the second HUD contract was far

from speculation.

Because the district court’s method for calculating loss is consistent with

past approaches approved by this court, and its conclusion is not clearly

erroneous, Fairley’s argument on this point fails.

ii. Abuse of Position of Trust

Fairley also disputes the district court’s application of an enhancement

for abuse of a position of trust pursuant to United States Sentencing

Guidelines Manual § 3B1.3. Section 3B1.3 provides for a two point increase in

the defendant’s offense level “[i]f the defendant abused a position of public or

private trust, or used a special skill, in a manner that significantly facilitated

the commission or concealment of the offense[.]” U.S.S.G. § 3B1.3. “This court

applies a two-part test to determine whether there has been an abuse of trust:

‘(1) whether the defendant occupies a position of trust and (2) whether the

defendant abused her position in a manner that significantly facilitated the

commission or concealment of the offense.’” United States v. Miller, 607 F.3d

144, 148 (5th Cir. 2010) (quoting United States v. Kay, 513 F.3d 432, 459 (5th

Cir. 2007)). Application of this enhancement is “a sophisticated factual

determination” that we review for clear error. Pruett, 681 F.3d 232 at 248.

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We have repeatedly upheld application of the enhancement for abuse of

a position of trust in similar contexts. For example, we have upheld its

application to owners of licensed durable medical equipment (DME) provider

companies that bill Medicaid and Medicare. The enhancement applies because

Medicaid and Medicare “depend[] upon the honesty and forthrightness of the

DME provider in its claim submissions[.]” Miller, 607 F.3d at 150. Owners of

such companies occupy a position of trust because “the government entrust[s

them] to provide good faith, accurate information in seeking reimbursement.”

Id.; see also United States v. Nowlin, 640 F. App’x 337, 349-50 (5th Cir. 2016)

(per curiam) (district court did not err in applying § 3B1.3 to owner of DME

company); United States v. Usman, 460 F. App’x 414, 418-19 (5th Cir. 2012)

(per curiam) (district court did not err in applying § 3B1.3 to owner of private

ambulance company).

Fairley served as executive director of Pinebelt, an approved Community

Housing Development Organization under HUD’s HOME Investment

Partnerships Program. In this role, Fairley occupied a position of trust with

respect to HUD that mirrors the role of a DME provider under Medicaid and

Medicare. Testimony elicited at trial showed that HUD, through Hattiesburg,

relied on Pinebelt’s representations of its own expenses in seeking

reimbursement. 20 Further, Fairley’s position as director of a CHDO facilitated

the commission of the offense: only CHDO’s are eligible to receive HOME

funds. Accordingly, the district court’s application of the abuse of a position of

trust enhancement was not clear error.

20 One of Fairley’s witnesses, a HUD consultant, agreed that HUD “assume[s]”

that the money given to a CHDO “is going to be spent in a way that’s consistent with the

program[.]”

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V.

For the forgoing reasons, we VACATE Fairley’s conviction on counts two

and three and REMAND to the district court for further proceedings consistent

with this opinion. We AFFIRM Fairley’s conviction on count one.

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GREGG COSTA, Circuit Judge, dissenting in part:

When a defendant raises an issue for the first time on appeal, any

mistake he shows can only be a basis for vacating the conviction if, among other

things, the defendant can prove that the error affected his substantial rights.

United States v. Olano, 507 U.S. 725, 734 (1993). This prejudice inquiry—like

its counterpart of “harmless error” analysis that just has a different burden

with the government having to prove that a preserved error did not impact the

result—causes appellate judges to engage in inquiries they do not ordinarily

undertake. For example, usually we are not supposed to “weigh the evidence.”

But we can, and often must, when deciding the prejudicial effect of a trial error.

See, e.g., United States v. Davis, 609 F.3d 663, 684 (5th Cir. 2010); United

States v. Rice, 607 F.3d 133, 140 (5th Cir. 2010). Appellate courts also normally

do not assess a witness’s credibility, but, in a prejudice inquiry, we have to

evaluate the force of impeachment evidence that was not available at trial.

Turner v. United States, 137 S. Ct. 1885, 1894–95 (2017); United States v.

Bowie, 198 F.3d 905, 910–11 (D.C. Cir. 1999) (contemplating how undisclosed

evidence would have been used at trial to impeach a police officer). The length

of time it took the jury to reach a verdict does not factor into a challenge to the

sufficiency of the evidence, but appellate courts may consider it when

evaluating whether an error had an effect on the verdict. Rogers v. United

States, 422 U.S. 35, 40 (1975); Marino v. Vasquez, 812 F.2d 499, 506 (9th Cir.

1987) (citing cases). Why do many of the rules that typically govern appellate

review go out the window when a court is engaging in a prejudice or

harmlessness inquiry? Because the very nature of such an inquiry requires a

reviewing court to do something at odds with its typical function: place itself

in the jury box to speculate about how the jury reached its verdict.

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If speculation about what the jury thought is allowed in a prejudice

analysis, how can we ignore powerful evidence of what the jury actually

thought? The jury provided that with its cross-outs showing that it found

Fairley guilty under the conversion theory for which the instruction was

proper. The only plausible meaning of the jury’s crossing out “retaining” and

“concealing” is as a response to the court’s unanimity instruction:

All of you must agree that the government proved beyond a

reasonable doubt that the defendant knowingly and willfully

received money, property or thing of value belonging to the United

States, or all of you must agree that the government proved beyond

a reasonable doubt that the defendant knowingly and willfully

concealed money, property or thing of value belonging to the

United States, or all of you must agree that the government proved

beyond a reasonable doubt that the defendant knowingly and

willfully retained money, property or thing of value belonging to

the United States, or all of you must agree that the government

proved beyond a reasonable doubt that the defendant knowingly

and willfully converted money, property or thing of value belonging

to the United States.

The district court thus read the verdict aloud as a finding of guilt only for the

offenses that were not deleted: “knowingly receiving or converting any money.”

That verdict is the one to which the jury assented with a show of hands. 1

But the majority opinion says we cannot consider the cross-outs in

assessing the impact of the instruction error because “additional jury notations

that are not directly responsive to the jury charge and verdict form are

surplusage and are to be ignored.” Maj. Op. at 19. Even accepting that

principle as stated, it does not bar consideration of the cross-outs given the

trial court’s view that they were a response to the court’s unanimity

1 The majority opinion’s attempt to come up with other possible reasons for the cross-

outs is thus at odds with the district court’s understanding. Maj. Op. at 20 n.62. But even if

those theories are remote possibilities, they do not help Fairley because he bears the burden

of demonstrating prejudice and certainly the most likely reason for the cross-outs is the

unanimity requirement.

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instruction. And any rule placing jury notations off limits is not as firm as the

majority opinion suggests; courts typically frame it as a matter of discretion. 2

More fundamentally, the cited cases involve courts refusing to use sidenotes

on the jury form to alter the official verdict. Great Pines Water Co. v. Liqui-

Box Corp., 203 F.3d 920, 924 (5th Cir. 2000); see also United States v.

Ailsworth, 138 F.3d 843, 846 (10th Cir. 1998). So, for example, if a jury put

$120,000 in the damages column of a civil verdict form, a side note showing the

jury incorrectly added $80,000 and $50,000 would not override the official

award it made. That rule makes sense for a number of reasons. But it is not

implicated here because the government is not seeking to use the cross-outs to

change the official “guilty” verdict the jury rendered. The question is whether

the jury’s clarifying action can be considered in deciding whether that guilty

verdict should stand in light of an error in the charge that was not identified

until this appeal. The majority opinion cites no case preventing us from

considering clear indications from the jury in the context of a prejudice inquiry.

In fact, one of the main rationales for excluding extraneous notes in the

ordinary situation is that invoking them constitutes an “attempt to expose the

jury’s collective mental process to judicial scrutiny.” United States v. D’Angelo,

598 F.2d 1002, 1003 (5th Cir. 1979). Yet that speculation about the “mental

processes” of the jury is exactly what a prejudice inquiry requires.

2See, e.g., Statler v. United States, 157 U.S. 277, 279 (1895) (“Surplusage in a verdict

may be rejected, being harmless . . . .” (emphasis added)); United States v. Ailsworth, 138 F.3d

843, 846 (10th Cir. 1998) (holding that so long as notations do not cast doubt on the

unqualified nature of a general verdict, “unnecessary or irrelevant statements in a verdict

form may be disregarded as surplusage” (emphasis added)); Slotkin v. Citizens Casualty Co.

of New York, 614 F.2d 301, 318 (2d. Cir. 1979) (holding that a jury’s attempt through

extraneous notations to allocate damages between defendants they have found jointly and

severally liable was mere “surplusage which may be disregarded” (emphasis added));

Prudential Ins. Co. of America v. Faulkner, 68 F.2d 676, 681 (10th Cir. 1934) (stating that a

court may disregard a jury’s notations following an award of damages concerning how the

award should be divided into installment payments).

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In conducting the prejudice inquiry, I would thus consider the cross-outs

which demonstrate that the jury found Fairley guilty under the permissible

conversion theory. Indeed, the jury’s responsiveness to the unanimity

instruction shows that it might have picked up on some of the errors in the

instruction that went unnoticed by counsel and the court. Cf. Plough v.

Baltimore & Ohio R. Co., 172 F.2d 396, 399 (2d. Cir. 1949) (L. Hand, C.J.,

dissenting) (“It is the office of special verdicts to avoid the effects of

misdirections by the judge. They are valuable –very valuable, I believe – just

because when they are used, the charge need not be impeccable.”). I would not

undo the jury’s conscientious work that notifies us that it convicted on the

permissible ground of conversion.

Even if we cannot consider the cross-outs, I still do not believe Fairley

has met his plain-error burden of showing that the instruction error affected

the verdict. The fear is that the flawed instructions allowed the jury to convict

only on a finding that Fairley received or retained money from the government

with the intent to convert it, but that he never actually got around to

converting it (because if he had actually converted the money, that would be a

crime). On the facts of this case, there is not much daylight between these two

theories as the majority opinion acknowledges. Maj. Op. at 17. Given that the

jury had to find that Fairley intended to convert the public funds, when did he

intend for that conversion to occur if not when the government sent him the

money? No theory of post-receipt theft was advanced at trial, which means

that Fairley’s intent to convert must have already manifested itself. The

thrust of Fairley’s defense was that the money was used for a proper purpose

of renovating the properties. That would have defeated an “intent to convert”

element just as much as it would have defeated an element of actual

conversion. If anything, Fairley’s defense may have stood a better chance with

the erroneous “intent to convert” language because he argued that the

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disagreement with the government stemmed from different views about what

expenses were reimbursable under the HOME program. If Fairley harbored a

mistaken but honestly held view about those reimbursements, that could have

defeated the intent requirement. So even without consideration of the cross-

outs, Fairley has not met his burden of showing that the unpreserved error

substantially affected his rights.

All this has said nothing about the final and more demanding condition

that must be met before we can vacate a verdict for a reason not presented to

the trial court: that the error seriously affected the “fairness, integrity, or

public reputation of judicial proceedings.” Olano, 507 U.S. at 736. The same

considerations that prevent Fairley from demonstrating prejudice also

influence this assessment of whether the overlooked error resulted in an

injustice. So should the fact that the cost of correction, in terms of the burden

on the parties, jury, and trial court, is much greater when a verdict is vacated

than when a sentence is. Cf. United States v. Sabillon-Umana, 772 F.3d 1328,

1334 (10th Cir. 2014) (Gorsuch, J.) (adopting a presumption that the fourth

requirement of plain-error correction is satisfied in sentencing cases in part

because the “cost of correction is so small” compared to vacating convictions).

It was this concern with upsetting verdicts “for error not brought to the

attention of the trial court” that gave rise to the stringent final requirement

for plain-error correction in an era—quite different from ours—when

sentencing appeals were virtually nonexistent. United States v. Atkinson, 297

U.S. 157, 159 (1936) (explaining that the principle against vacating verdicts

because of errors not raised at trial “is founded upon considerations of fairness

to the court and to the parties and of the public interest in bringing litigation

to an end after fair opportunity has been afforded to present all issue of law

and fact”); see Olano, 507 U.S. at 736 (recognizing that Atkinson set forth the

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plain-error standard later codified in 1944 as Federal Rule of Criminal

Procedure 52(b)).

I therefore would affirm the guilty verdicts on all three counts.

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