HEALTHCARE FRAUD DEFENSE JOURNAL
I will be a guest blogger over at the Southern District of Florida Blog each Thursday. HERE is the announcement.
Looking forward to this. Hope you will enjoy the blogging.
The Fifth Circuit created a new avenue to protect privileged materials in Harbor Healthcare Systems LP v. United States – Federal Rule of Civil Procedure 41(g).
Harbor Healthcare Systems (“Harbor Healthcare”) was the subject of two qui tam investigations. Following responses to several Civil Investigative Demands, the Department of Justice executed a search warrant at Harbor Healthcare’s offices. The search warrant was broad, and agents seized over 3 terabytes of electronic records in addition to paper documents. Among the items seized was the computer of Harbor Healthcare’s compliance officer. Harbor Healthcare advised the government that a wealth of privileged materials were contained on the compliance officer’s computer. The government created a filter team to review the documents for privilege, but never alerted the magistrate that privileged materials were seized.
When the government failed to confer with Harbor Healthcare attorneys to discuss a taint team protocol, Harbor Healthcare filed a motion under Rule 41(g) seeking the return of the privileged materials. The government moved to dismiss the motion on the grounds that it was untimely. While the parties litigated the Rule 41(g) motion and the government’s motion to dismiss, Harbor Healthcare learned that the government had already reviewed and transferred several privileged items to the civil and criminal investigative teams. The district court ultimately granted the government’s motion to dismiss.
On appeal, the Fifth Circuit found that the government had failed to respect Harbor Healthcare’s privacy rights during the taint team’s search and review of the privileged materials. Particularly, the Court found that the government showed a callous disregard for Harbor Healthcare’s rights by failing to “seek express prior authorization from the issuing magistrate judge for the seizure of attorney-client privileged materials,” despite knowing that the searches would result in the seizure of attorney-client privileged materials. The Court further held that the government had disregarded Harbor Healthcare’s privacy rights by failing to return and/or destroy materials identified as privileged. In addition, the Court found that the government’s retention of privileged documents for over 4 years caused an ongoing injury even though the government provided Harbor Healthcare with copies of the documents. The Court explained that the government’s retention of the documents caused a continued intrusion of privacy, which could not be cured by providing copies.
The Harbor Healthcare opinion paves the way for new protocols for the government when seeking a search warrant from a magistrate. In fact, the case provides that the government should inform the magistrate when it knows that the intended search will, or is likely to, result in the seizure of privileged materials. Failure to seek such judicial preauthorization may result in a court ordering the return of records seized.
In light of this ruling, defense practitioners should consider whether it is appropriate to seek relief under Rule 41(g) when the search of a client’s premises results in the seizure of privileged materials.
The opinion can be found HERE.
Edited by Mark E Wojcik
Now available at: https://americanbar.org/products/inv/book/415804170/
This publication examines and reports on the major issues, trends and significant changes in the criminal justice system. The 2021 edition contains chapters focusing on specific aspects of the criminal justice field, with summaries of all of the adopted official ABA policies passed in 2020-2021 that address criminal justice issues.
I proudly authored the Chapter on Trending Topics in Criminal Defense.
The United States District Court in the Middle District of Tennessee reversed a murder conviction and granted a new trial in the case of United States v. Maurice Burks, 2021 WL 2209334, due to the prosecutor’s failure to disclose Brady evidence prior to trial.
The Burks case was tried over 25 days where 85 witnesses testified, and more than 1,200 documents were introduced into evidence. Most of the evidence at trial was tied to Burks’ five co-defendants’ involvement in the Gangster Disciples – a criminal organization. The co-defendants were charged with a RICO conspiracy among other things.
Burks was charged with the murder of Malcolm Wright. The government’s key evidence was a .45 caliber gun that was recovered. The government presented three witnesses against Burks, but the star witness was Danyon Dowlen a/k/a Danger Dan. Dowlen testified that Burks used a .45 caliber gun to murder Wright, thus, linking Burks to the murder weapon.
However, Dowlen was a less than credible witness with many motives to lie and garner favor with the government. Particularly, Dowlen was facing his own murder charge at the time of his testimony. In fact, in its opinion reversing Burks’ conviction, the District Court noted that “having had the opportunity to watch the manner, tone, facial expression and over all tenor of Dowlen’s testimony” it was apparent that “Dowlen would say whatever he thought the Government needed, or wanted, to hear.”
After the trial, while the parties litigated and appealed an initial motion for new trial, which was granted, and a second motion for new trial, which was denied, the government disclosed a Report of Investigation (“ROI”) for the first time. The ROI memorialized a pre-trial interview of Dowlen where he tells two agents and the lead prosecutor that Burks may have used a .40 or .45 caliber gun to murder Wright. The type of weapon was a central feature of the government’s case. The government claimed it inadvertently failed to disclose the ROI, and Burks moved for a new trial claiming that the ROI was Brady evidence that should have been disclosed.
The District Court agreed and granted Burks’ motion due to the prosecutor’s Brady violation. In its opinion, the Court noted that it had a role as the thirteenth juror to judge the credibility of the witnesses and the weight of the evidence to ensure there is not a miscarriage of justice. The Court found that if the ROI had been disclosed timely, the result at trial would have been different.
The Burks case is interesting not only because a new trial was granted, but also because of the Court’s description of its role as the thirteenth juror.
The Fifth Circuit Court of Appeals has reversed the defendant’s conviction in United States v. Jonathan Nora, 988 F.3d 823 (5th Cir. Feb. 24, 2021) – a case wherein Nora was convicted of conspiracy to commit health care fraud, payment of illegal kickbacks, and aiding and abetting health care fraud.
The government had indicted 23 individuals in connection with a scheme involving Abide Home Health Care Services, Inc., a home health agency. Many co-defendants pleaded guilty prior to trial, including Abide’s owner, Lisa Crinel. Crinel was one of the government’s star witnesses at trial. Nora and five co-defendants stood for trial.
According to the allegations, Abide employed four physicians aw house doctors who referred patients to Abide for home healthcare services. Another employee, Paula Jones, processed Medicare billing for Abide. Nora was an office manager.
The case against Nora focused on his job duties, including scheduling nurse visits, physician appointments, and processing vouchers for referral payments. The government further alleged that Nora’s job duties, coupled with testimony from a co-defendant that “everyone in the office knew” there was fraud, was sufficient to convict.
The government alleged that Abide billed Medicare for home healthcare services for beneficiaries who did not need such services, but who had been fraudulently certified to receive them. The government also alleged Abide paid physicians, directly or indirectly, to refer patients. The government alleged Abide disguised the payments as compensation for services.
During her testimony, Crinel explained that Nora worked for Abide as an office manager, up through the date the government executed a number of search warrants. In this role, Nora coordinated new patient intake and admissions. His tasks included fielding calls, verifying insurance coverage, assigning nurses to conduct evaluations and make home health visits, and helping with data entry.
Nora also contacted potential patients identified by recruiters to ascertain their interest and eligibility for home healthcare services. If a patient expressed interest in home health services, but her doctor did not approve it, Nora would inform the patient that she would have to see a different physician to obtain approval. If the patient remained interested in Abide’s services notwithstanding her own doctor’s recommendation, Nora would offer to assign the patient to one of Abide’s house doctors for a separate evaluation of her eligibility.
Nora’s responsibilities entangled him in various aspects of the kickback scheme. First, Nora connected prospective patients with the “house doctors” who referred patients to Abide for home health services. The government alleged that this made Nora complicit in the scheme. The government also alleged that Nora processed the patient referral payments, which it characterized as illegal kickbacks.
All five defendants were convicted and appealed, but Nora appealed separately.
In his appeal, Nora argued that his convictions were not supported by sufficient evidence. The Fifth Circuit agreed, finding the evidence presented at trial did not prove that Nora understood Abide’s various practices and schemes to be fraudulent or unlawful, and thus there was insufficient evidence to conclude that Nora acted with “bad purpose” in carrying out his responsibilities at Abide.
The Fifth Circuit concluded that, even under the court’s extremely deferential review of jury verdicts, there was insufficient evidence put forth at trial for a rational juror to conclude beyond a reasonable doubt that the defendant acted with the knowledge that his conduct was unlawful. The court further found that the government had failed to prove the defendant acted “willfully” with respect to each count. The court vacated the defendant’s sentence.
The court further noted that while one witness testified that “everyone” knew about the home health services scheme, she provided no other details. The court could not determine whether everyone in the office knew about the practice, or whether everyone knew the practice violated Medicare regulations. The court acknowledged that the practice of providing services while not billing Medicare was inherently suspicious. However, even if a reasonable person in Nora’s shoes should have known (or at least suspected) that this practice was unlawful, the court reasoned that would only make Nora guilty of negligently participating in a fraud. It did not prove that Nora acted “willfully” in facilitating the practice or the fraud.
The opinion can be found HERE
I had the opportunity to speak to Nicole Hughes Waid a partner at Fisher Broyles, following her trial in the case of United States v. Casey David Crowther, Case No. 20-cr-00114 (M.D. Fla.). Crowther was one of the first people charged by the federal government with fraud related to the receipt of Paycheck Protection Program (“PPP”) funds.
Crowther is the owner of a roofing business. His Company applied for and received a $2.1 million loan from a lender pursuant to the PPP. Following receipt of the funds, Crowther purchased a boat valued at approximately $689,417 and made a $100,000 payment on a promissory note to a prior business partner. During the covered period, Crowther paid over $2.1 million in salaries to employees.
Before Crowther applied for forgiveness of the loan, and before the loan became due, Crowther was indicted. The government alleged that Crowther used PPP funds to purchase a boat. Crowther maintained that he used the sum of the loan on allowable expenses, including payroll.
As part of a global defense strategy, Ms. Waid opted to go to trial quickly. Because the case involved complicated legal issues, Ms. Waid also requested a bench trial. The government refused and insisted on a jury trial.
At trial, the government’s theory was that money is not fungible and that it is criminal for the recipient of a PPP loan to purchase a boat even though there is no loss to the bank. The defense’s theory was that Crowther complied with the CARES Act and the government cannot create additional restrictions that do not exist in the enabling statute.
The most important testimony at trial came from a bank representative and a government witness. The bank representative testified that the loan to Crowther remains on the books as a performing loan and that the bank does not consider itself a victim. The bank representative also testified that the PPP loan funds are bank funds that areonly guaranteed by the Small Business Administration in the event of a default on the loan or if the borrower is eligible for forgiveness.
John Miller, the Associate Administrator at the Office of Capital Access for the SBA, testified that financial need is subjective and in the eye of the beholder at the time of the PPP application. This is a key statement for defense practitioners defending clients against allegations of PPP fraud. It also provides a comfort level to those entities that have sought and obtained PPP funds despite a stable economic position.
Unfortunately, Crowther was found guilty. The jury only deliberated for 2 hours. A clear indication that they did not understand the complicated legal issues presented by the case. Additionally, it is also a sign that the jury convicted Crowther based on the overwhelming “bad act” evidence the government was permitted to introduce.
But all is not lost for Crowther. He has very strong legal issues for appeal. Particularly, this is a statutory construction case and the issue of notice will likely feature prominently in the appeal. The government could not keep the CARES Act straight in the superseding indictment or trial and misstated the CARES Act throughout the trial. A law that the government cannot properly articulate is surely too vague and confusing for a businessman to properly interpret and understand.
The Eleventh Circuit’s decision in United States v. Takhalov, 827 F.3d 1307, 1310, (11th Cir. 2016) is instructive for the appeal in Crowther. In Takhalov, the 11th Circuit held that the panel reversed the wire fraud convictions, holding that a defendant may not be convicted of fraud merely because he deceives another to cause him to engage in a transaction, if the transaction otherwise provides the customer with exactly what he paid for (in this case, expensive drinks at a bar). Here, the bank representative made clear that the bank received exactly what it bargained for during the loan transaction.
The government’s issues in Crowther will not be limited to a reversal on appeal. Because the bank representative testified it was not a victim and the loan was still performing on its books, there is no loss. The government might try to argue that the loss was “intended,” but this would be inconsistent with the hard facts – the loan has not become due.
Crowther is a good example of the fact juries don’t always get it right. The good news for Crowther is that Ms. Waid did an excellent job of creating a record for the appeal of the conviction.
Amina Abbas, of Taylor, was charged by indictment Wednesday in the Eastern District of Michigan with embezzlement of government property.
The indictment includes the first criminal charges for the intentional misuse of funds intended to provide relief to health care providers and maintain the access to medical care during the pandemic, money set aside to help Americans get needed medical care in a global health and economic crisis.
The indictment alleges that Abbas previously owned 1 on 1 Home Health (1 on 1), which she had closed in early 2020 after Medicare issued an overpayment demand for $1,619,967.08. Medicare was demanding overpayment because 1 on 1 had submitted claims for patients who did not qualify for home health services. According to the indictment, 1 on 1, which was never operational during the pandemic, received approximately $37,656.95 designated for the medical treatment and care of COVID-19 patients. Abbas then allegedly misappropriated the funds by issuing checks to her family members for personal use.
News just broke that the Acting AG, Monty Wilkinson, has rescinded the infamous Sessions‘s charging policy, and reinstated AG Holder’s charging policy, which directs prosecutors to conduct an individualized assessment of relevant facts in making charging and sentencing decisions. The Wilkinson memo “supersedes any conflicting Justice Manual provisions.”
Today’s guidance ends Sessions’s mandate that prosecutors should, as a “core principle,” “charge and pursue the most serious, readily provable offense.” Although the 2010 Holder memo also directs prosecutors to “ordinarily charge” the most serious offense, it emphasizes that charging determinations should be made in the context of an “individualized assessment of the extent to which particular charges fit the specific circumstances of the case, are consistent with the purpose of the Federal criminal code, and maximize the impact of Federal resources on crime.”
For more information, click HERE
In a blow to prosecutors, Judge Middlebrooks has ruled that prosecutors cannot tactically use Rule 48 when faced with an expiring statute of limitations.
During the pandemic, I have heard of several instances where prosecutors facing the expiration of a statute of limitations period will file an Information, only to then seek dismissal of the Information without prejudice in order to “stop the clock” from running. The government is in essence playing a game in order to skirt a fundamental constitutional right.
In United States v. B.G.G., No. 20-80063-CR-Middlebrooks (D.E. 19) (S.D. Fla. Jan. 11, 2021), David Markus and Lauren Doyle decided they were not going to take this lying down and challenged the government.
In United States v. B.G.G., the government filed an Information on August 28, 2020. The statute of limitations for the charged offense expired on August 31, 2020. On September 2, 2020, the government emailed a proposed order to the Court, proposing dismissal of the Information pursuant to Rule 48 allowing voluntary dismissal without prejudice. The defense promptly responded, requesting that the Information be dismissed with prejudice. Upon review, the Court held that the government’s tactical use of Rule 48 was inappropriate.
While the briefing in the case is sealed, the Court’s Order is not. The Order confirms that the government affirmed that it sought to file the Information in order to “institute” the action within the meaning of 18 U.S.C. § 3282(a), the statute of limitations, believing that it could later file an indictment. Section 3282 provides: “Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years after such offense shall have been committed.” The limitations period may be tolled for six months after dismissal of the indictment or information, or six months from the date the first grand jury is reconvened if the “indictment or information charging a felony is dismissed for any reason after the period prescribed by the applicable statute of limitations has expired.”
The Court held that the filing of the Information did not “institute” the action within the meaning of Section 3282 because the Information was not a viable vehicle for prosecution. The Court reasoned that allowing the government to “tactically” use Rule 48 “would not serve the strong public interest of upholding statutory and constitutional protections.” The Court further stated that the government’s proposed action would also have “the effect of eroding the fundamental purpose of the statute of limitations – “to limit exposure to criminal prosecution to a certain fixed period of time following the occurrence of those acts the legislature has decided to punish by criminal sanctions.” The Court went on to say that a criminal statute of limitations could not serve its purpose if the prosecution could just extend the limitations period whenever it felt convenient by filing a charging instrument that was not viable for prosecution.Following the Order, the government quickly filed its notice of appeal. This is a case to monitor in 2021!
This week brought two new Paycheck Protection Program (“PPP”) fraud indictments.
The first indictment is out of the Southern District of Texas. The case is United States v. Amir Aqeel, et al., Case No, 4:20-cr-583 (S.D. Texas). In Aqeel, seven individuals were charged with filing over 80 fraudulent loan applications worth $16 million. The defendants were charged with conspiracy to commit wire fraud, wire fraud, and money laundering.
According to the Indictment, the defendants falsified their PPP loan applications by faking the number of employees and average monthly payroll. The defendants also used third parties to submit applications and paid kickbacks for that service. The loan proceeds were funneled to family members posing as employees. The defendants used the money to purchase luxury cars and other items.
Interestingly, all the companies the defendants used to perpetrate the fraud were in business prior to the pandemic. The defendants used different banks and kept the loan values relatively low to avoid detection.
Over in Los Angeles, four individuals were charged with PPP fraud in the case of United States v. Richard Ayvazyan, Case No. 20-mj-03857. The charges brought in Ayvazyan were slightly different than those in the Texas case. In Ayvazyan, the defendants were also charged with conspiracy to commit bank fraud and substantive bank fraud counts in addition to conspiracy to commit wire fraud and wire fraud.
In Ayvazyan, the Indictment alleges that the defendants submitted fraudulent information in order to get loans. The loan proceeds were used to purchase residential property, among other things.
It seems the government went to great lengths to investigate the Aqeel and Ayvazyan cases, including executing search warrants and collecting emails. The government is likely using data analytics to identify outliers as it does in health care cases to pick the low hanging fruit.
These prosecutions are just the beginning though. The Small Business Administration (“SBA”) announced in FAQ No. 39 that it will review all PPP loans in excess of $2 million. The SBA is also requiring companies that sought in excess of $2 million to complete a questionnaire with questions geared toward determining whether the loan applications’ certification of economic uncertainty was made in good faith. While not disclosed, the SBA will likely use these questionnaires to continue to identify outliers to investigate.