Court Erroneously Excluded Character Evidence & Calculated Restitution to Include Loss Outside Alleged Time Period

United States v. De Leon, No. 12-40244 (Aug. 29, 2013) (Stewart, Davis, Wiener)

De Leon was convicted at trial of five counts of health-care fraud.  His attorney called his mother as a character witness.  After some background questions, the attorney asked whether De Leon was a law-abiding citizen.  The Government objected citing Federal Rule of Evidence 608(a).  The Court sustained the objection and instructed De Leon that his second character witness would be limited to testifying as to De Leon’s reputation for truthfulness.  The defense attorney did not call the second witness and then rested. 

The district court erred in excluding evidence of De Leon’s law-abiding character.  “‘[E]vidence of the defendant’s pertinent trait’ is admissible.  [Fed. R. Evid. 404(a)(2)(A).] And evidence of the defendant’s ‘character as a law-abiding citizen . . . is always relevant.’” Rule 608(a) applies only to a witness’s credibility, and De Leon was not a witness.  This erroneous ruling, however, did not affect De Leon’s substantial rights since there was “overwhelming evidence of De Leon’s knowing submission of fraudulent claims.”  The panel affirms the conviction.

The district court also plainly erred in calculating the restitution award.  The PSR calculated the loss as the $2.9 million paid by Medicare and Medicaid to De Leon, on any and all claims, from 2005 through 2011.  The temporal scope of the conduct charged in the indictment was June or July 2008 through April 2010.  “Restitution is limited to the loss actually caused by the offense of conviction . . . [and] cannot be awarded for ‘losses’ attributable to conduct outside the temporal scope of the scheme charged . . . [or] for conduct not charged as part of the scheme.”  Thus, payments to De Leon in 2005, 2006, 2007, and 2011 cannot be counted among the actual losses incurred.

The district court conducted several hearings to try to discern which of the payments were fraudulent.  Ultimately, the court concluded that “it was ‘difficult, if not impossible, to ascertain with precision the actual loss,” so the court estimated that the total loss totaled $750,000 split evenly between Medicare and Medicaid.  The panel vacates the restitution reward and remands for recalculation even though the district court did not award the full $2.9 million since the record does not suggest that the district court excluded the sums outside of the temporal scope of the Indictment.  “By calculating restitution on the basis of the PSR’s exaggerated ‘ceiling,’ the district court indisputably awarded restitution for claims outside the scope of the charged conspiracy.

The panel notes, though, that on remand the district court can assign De Leon the burden of demonstrating the amount of credit he is due if the court concludes that justice requires this burden shift:

“Even though the MVRA puts the burden on the government to demonstrate the amount of a victim’s loss, a sentencing court may shift ‘the burden of demonstrating such other matters as the court deems appropriate . . . [to] the party designated by the court as justice requires.’ . . . ‘[W]e have approved the transfer of at least a portion of the burden to a defendant to establish his entitlement to a restitution credit.’ 

United States v. Sharma, 703 F.3d 318, 325 (5th Cir. 2012).

Crawford Doesn't Bar Use of Grand Jury Testimony to Establish Business-Record Predicate at Trial; Court Explores Interplay Between 404(b) & 608(b)

United States v. Morgan, No. 06-20634 (5th Cir. Oct. 17, 2007) (per curiam) (Dennis, Clement, Prad0) (The opinion indicates that Judge Dennis concurred in the judgment only, but there's no explanation as to why.)

Morgan was convicted at trial of twelve counts of health care fraud, under 18 U.S.C. § 1347, for her role in a scheme involving Medicare claims for motorized wheelchairs and scooters ("durable medical equipment" in Medicare-speak). Medicare beneficiaries can submit claims for DME, but the claims regulations require 1) a prescription for the DME from a treating physician who has actually seen the patient face-to-face, and 2) a "certificate of medical necessity" that, as the name implies, certifies that the patient actually needs the equipment. The details of the scheme were pretty involved, but here's Morgan's involvement in a nutshell: Morgan was paid to write wheelchair and scooter prescriptions for patients she never met. Her signature also appeared on CMN's for the equipment. Medicare paid nearly $8 million of the $24 million in claims submitted using Morgan's Medicare physician identification number.

Morgan raised a couple of interesting evidentiary issues on appeal, both of which the court rejected. First, she argued that the use of grand jury testimony to authenticate business records used against her at trial, as well as the admission of the records themselves, violated the Sixth Amendment's Confrontation Clause. (Unfortunately, the opinion doesn't clearly explain which records those were, or exactly what the testimony was. Also, the witness appears to have been a participant in the scheme. For reasons not explained in the opinon, he was unavailable to testify at trial.)

As for the foundational testimony, the court acknowledged that "Crawford specifically identifies grand jury testimony as testimonial in nature." But then it pointed to pre- and post-Crawford case law from the Fifth Circuit holding that the Confrontation Clause doesn't bar the admission of a certificate of the absence of public records, and that the confrontation right doesn't apply at sentencing. The court also cited Seventh and Ninth Circuit cases holding that certifications of the authenticity of business and public records aren't testimonial. The Seventh reasoned that if business records are nontestimonial, as Crawford said, then the foundational evidence must be, too. The Ninth Circuit apparently relied in large part on the inconvenience that live testimony would pose for witnesses and the Government, "without any apparent gain in the truth-seeking process." (I'm just a caveman, but don't see what that has to do with whether evidence is testimonial or not. And hasn't the Sixth Amendment has already made the inconvenience call in the accused's favor?) Based on all this, the court held "that Crawford does not apply to the foundational evidence authenticating business records in preliminary determinations of the admissibility of evidence." It also held that the business records themselves aren't testimonial, pointing to Crawford and to Fifth Circuit cases holding that public records and a certificate of non-existence of an INS record aren't testimonial, either.

Morgan's second challenge was to the admission of extrinsic evidence that she violated a condition of her pretrial release. At trial,

[a]fter questioning Morgan about the charges in the indictment, the government continued to cross-examine her about pretrial release conditions requiring her to refrain from opening any new bank accounts. Morgan admitted that she met her daughter at Compass Bank one day and that she endorsed a check for approximately $179,000 on that visit but denied depositing it and denied opening a new account.

The government called a rebuttal witness, Daniel Wu of Compass Bank, who testified that Morgan and her daughter met with him on October 24, 2005 when Morgan asked him to close two business accounts, to open a new business account, and to transfer the funds from the old accounts into the new account. The new account carried the same name as one of the closed accounts, and Morgan’s daughter was to be the signatory. Over a defense objection, Compass Bank records were admitted which included a signature card with Morgan’s daughter’s name and a copy of a check for $172,506. Wu identified the check as the instrument that was deposited on October 24, 2005, stated that Morgan had handed him the check and stated that he was present when she endorsed it. Morgan told Wu to only put her daughter’s name on the new account. Wu testified, “[Morgan] said to make sure that I remembered who she was so that when she took care of her personal matters, that she could—so that I could add her to this new account.”

The court observed that, because Morgan put her character for truthfulness at issue by testifying, FRE 608(b) permitted the Government to ask her about specific instances of misconduct, and "violations of the conditions of her pretrial release rise to a level of dishonest conduct sufficient to allow the government’s inquiry." But the court also pointed out that "Rule 608(b) does not allow extrinsic evidence of specific instances of misconduct outside of cross-examination and could not be the basis for admission of Wu’s rebuttal testimony or the bank records."

The court nevertheless held that Rule 404(b) permitted what Rule 608(b) otherwise disallowed in this case. It concluded that, because Morgan's defense at trial was that she lacked the intent to defraud and that the signatures on the CMN's were forgeries, "[e]vidence of Morgan’s attempt to circumvent pretrial release conditions by concealing her opening of a new bank account by using her daughter’s name rebutted her defense that she lacked fraudulent intent. Also, Morgan’s apparent perjury at trial proved fraudulent intent as to the underlying scheme for which she was on trial." The court also said that the episode at the bank showed that "Morgan had knowledge of how to commit fraud," that Morgan's "knowledge of how to circumvent signature requirements rebutted her testimony" that the signatures on the CMN's were forgeries, and that "[e]ven if she had not signed the forms, her activity at Compass bank proved that she knew how to benefit from the use of her identity without fully disclosing it." Finally, the court held that the prejudicial effect of the evidence didn't subtantially outweigh its probative value, so there was no abuse of discretion in admitting it.