Judge’s Use of Red Pen to Note Humorous Points During Health Care Fraud Trial Not Plain Error; Restitution Orders Vacated for Erroneous Calculation

United States v. St. Junius, No. 11-20805 (5th Cir. Dec. 18, 2013) (Stewart, King, Prado)

Three defendants were convicted by a jury of various crimes related to their involvement in a health care fraud conspiracy.  The panel affirms their convictions.  At one point during trial, the district judge commented to the jury that he will make notes about things he finds humorous with a red pen so that he can visit with the jury after the case in the jury room about those things; all other notes he will take in black ink.  None of the defendants objected contemporaneously to these remarks.  The panel rejects the argument that the jury could look to see what color of pen the judge was using to help them determine how to interpret the evidence.  No plain error.

Ramos objected to the introduction of her personnel file on the first day of trial on the grounds that her counsel had not seen the records before and did not have sufficient time to review them.  She challenges the admission of the documents as a violation of the court’s order requiring parties to exchange exhibits seven days prior to the start of trial.  Ramos did not request discovery pursuant to Rule 16, and could not therefore challenge the admission under Rule 16.  The panel finds that the admission of the personnel file did not prejudice Ramos’s substantial rights because the Government would have sustained its burden of proof without it, noting that Ramos had equal access to it prior to trial.

The panel finds that the district court properly allowed rebuttal testimony that was relevant, was not hearsay (because not offered for the truth of the matter but rather to impeach the defendant’s credibility), and was not offered as character evidence.  The panel also defers to the district court’s decision to limit the deliberate ignorance instruction to one of the defendants whose defense at trial focused on her alleged lack of guilty knowledge. 

The panel rejects Ramos’s argument that she could not have willfully violated the Anti-Kickback Statute because she did not know that engaging in a commission-based pay arrangement with a Medicare provider violated the law.  The panel finds that the Government need only “prove that the defendant willfully committed an act that violated the Anti-Kickback Statute,” not that the defendant knew of the statute or acted with a specific intent to violate it.

The panel affirms St. Junius’s sentence, finding that it is plausible that she held a managerial role in the offense since she led others to believe she owned the business and “signed Medicare documents, signed and issued paychecks, and sent correspondence as the owner” of the business.  St. Junius also held a position of trust since she had a license to provide medical equipment for Medicare, and she abused that trust by signing documents and engaging in other activities that helped facilitate the health care fraud conspiracy.  The panel finds that Ramos and Spicer also abused positions of trust even though they did not have a fiduciary relationship with Medicare; they both transferred patients’ “means of identification” to facilitate the crime.  

The panel vacates Spicer’s and Ramos’s restitution orders, however, because they were improperly based on conduct outside of the offense for which they were convicted.  The restitution amount was based on the total amount Medicare/Medicaid paid the business based on Spicer’s and Ramos’s referrals ($794,434.08); “a figure that grossly exceeded the amount Medicare/Medicaid paid with respect to the crimes for which” they were convicted. 

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).

Plain Error to Order Restitution for Loss Associated with Acquitted Counts

United States v. Mason, No. 10-10743 (July 2, 2013) (Jolly, Davis, Prado)

The heading seems to make basic sense, right? If someone is acquitted of some counts but found guilty of other counts, then the restitution amount should only be based on the loss associated with the guilty counts.

Instead, the district court ordered mandatory restitution that included $74,619.12 of loss attributed to the conspiracy count of which the defendant, Andrews, was acquitted. Andrews did not object, so the panel reviewed for plain error. Under United States v. Inman, 411 F.3d 591 (5th Cir. 2005), the Mandatory Victims Reauthorization Act makes a defendant "only responsible for paying restitution for the conduct underlying the offense for which he was convicted." According to United States v. Sharma, 703 F.3d 318 (5th Cir. 2012), a restitution award cannot compensate a victim for losses "caused by conduct that falls outside the temporal scope of the acts of conviction." Thus, the panel concludes that the district court plainly erred by including loss related to an offense of which Andrews was acquitted. This affected his substantial rights because the variance was over $70,000 and because the failure to correct the error would constitute manifest injustice.

The other defendants in this case raised a variety of issues that the panel did not address because they did not find any merit to those arguments.

Supreme Court Grants Cert to Resolve Causation Required for Restitution in Child Porn Cases

Paroline v. United States, No. 12-8561 (June 27, 2013)

Is the Government or a victim trying to get your child porn client to pay millions in restitution pursuant to In re Amy Unknown, 701 F.3d 749 (5th Cir. 2012)? Keep on making those objections.

The Supreme Court granted cert to resolve the following question: "What, if any, causal relationship or nexus between the defendant's conduct and the victim's harm or damages must the government or the victim establish in order to recover restitution under 18 U.S.C. §2259."

En Banc Grant: Is Proximate Cause Required for Child Porn Restitution?

The Fifth Circuit will be revisiting en banc its decision in In re Amy Unknown, 636 F.3d 190 (2011), a mandamus action arising out of Doyle Paroline's prosecution for possession of child pornography. Two of the images Paroline possessed were of Amy Unknown; the images had been produced years before by an uncle who abused her as a young child.

After Paroline pleaded guilty, Amy Unknown sought restitution under 18 U.S.C. § 2259, which mandates restitution for losses incurred by victims of various offenses involving sexual exploitation of children. The district court denied restitution, concluding both that § 2259 requires that the defendant proximately cause the losses for which restitution is allowed, and that the Government failed to prove that Paroline's conduct was the proximate cause of Amy's losses.

Amy appealed the order denying restitution and also sought mandamus under the Crime Victims Rights Act (18 U.S.C. § 3771(d)(3)). A panel of the Fifth Circuit denied mandamus. A second panel was assigned both the direct appeal of the restitution order and Amy's petition for rehearing of the decision denying mandamus. That panel held, contrary to several other circuits, that § 2259 does not require a victim to show that the defendant proximately caused the losses for which restitution is allowed (except for a catch-all category of losses for which the statute specifically requires proximate cause). Also at issue was whether a crime victim has a right to a direct appeal in these circumstances; the second panel did not reach that issue because "the district court clearly and indisputably erred in grafting a proximate causation requirement onto the CVRA."

This AP story provides additional background about the case. (link via SL&P).

Restitution Order Based on Taxes Owed Is "Debt Due for Federal Tax" Under Federal Debt Collection Procedures Act & Consumer Credit Protection Act

United States v. Clayton, No. 09-31025 (5th Cir. Aug. 2, 2010) (Davis, Smith, Haynes)

How much of one's earnings may be garnished to satisfy a restitution order based on a failure to pay federal income taxes? All of them.

Clayton pleaded guilty to three misdemeanor counts of failing to file federal income tax returns for the tax years 1999 through 2001. His tax liability for those three years was $608,727. His sentence included an order that he pay restitution in that amount to the IRS.

As it turns out, Clayton was a retired riverboat pilot with the New Orleans Baton Rouge Steamship Pilots Association (NOBRA). Among other types of payments, "NOBRA . . . owed Clayton monthly payments of between $15,000 and $16,000 for life, which it described as half-pay inactive status benefits."

So after Clayton was shipped off to BOP, the United States obtained a writ of garnishment from the district court, pursuant to the Federal Debt Collection Procedures Act (FDCPA, and not to be confused with that other FDCPA, the Fair Debt Collection Practices Act). It ordered NOBRA to pay to the United States 100% of Clayton's half-pay inactive status benefits, as well as 25% of other payments, to satisfy the restitution order. Clayton appealed the 100% portion of the order.

As a threshold matter, the court had to figure out the standard of review for such an appeal. The answer: abuse of discretion. In this case, the matter was one of statutory interpretation, so that was reviewed de novo.

Onward to the merits . . . .

The United States is authorized to enforce any restitution order imposed as part of a criminal sentence by using its powers under the FDCPA. See 18 U.S.C. § 3664(m)(1)(A) (2006); 18 U.S.C. § 3613(a), (f) (2006); see also United States v. Phillips, 303 F.3d 548, 550–51 (5th Cir. 2002) (explaining the statutory scheme in detail). The FDCPA in turn authorizes the government to garnish property “in which the debtor has a substantial nonexempt interest and which is in the possession, custody, or control of a person other than the debtor, in order to satisfy the judgment.” 28 U.S.C. § 3205(a) (2006). However, the government’s power to collect restitution in general is expressly made subject to the restrictions on garnishment of section 303 of the Consumer Credit Protection Act (“CCPA”), 15 U.S.C. § 1673 (2006). See 18 U.S.C. § 3613(a)(3).

The principal restriction imposed by the CCPA is that garnishment of an individual’s disposable earnings is limited to twenty-five percent of the debtor’s weekly earnings. 15 U.S.C. § 1673(a)(1). Clayton argues that this restriction applies here to limit the garnishment of his half-pay inactive status benefits. The United States contends that 15 U.S.C. § 1673(b)(1)(C) expressly removes the garnishment order obtained here from the protection of the CCPA altogether: that subsection provides that, without qualification or exception, “[t]he restrictions of subsection (a) do not apply in the case of . . . (C) any debt due for any State or Federal tax.” 15 U.S.C. § 1673(b)(1)(C).

The question then becomes whether the restitution order constitutes a debt “due for any Federal tax.” We agree with the government that the unequivocal plain language of 15 U.S.C. § 1673(b)(1)(C) operates to eliminate the twenty-five percent garnishment limit as to this order.

The chain of reasoning is this: "any" is broad, a restitution order is a "debt", and it's "due for any Federal Tax" because it's payable to the IRS and "[o]ther circuits and the United States Tax Court have explained that the payment of criminal restitution based on taxes owed constitutes the payment of tax." And "[w]hile no state or federal court has apparently ever addressed this provision before,'[w]hen the plain language of a statute is unambiguous and does not lead to an absurd result, our inquiry begins and ends with the plain meaning of that language.'"

By the way, if like me you wonder how a riverboat pilot could rack up a $600K tax liability in three years, read this.

Fives Affirm Questionable 404(b) and Loss-Amount Determinations in Union Voter Fraud Case

United States v. Crawley, No. 07-20461 (5th Cir. June 27, 2008) (Jones, Barksdale, Stewart)

Crawley was elected president of a Teamsters local in Louisiana in 1997, 1999, and 2002. Irregularities in the 2002 election prompted an investigation which revealed that Crawley falsified voter ballots, and that he received a $20,000 kickback in connection with a contract for telephone services at the union hall. Crawley was eventually convicted of mail fraud, and several Title 29 embezzlement and false record offenses. In addition to sentencing him to 78 months' imprisonment, the district court ordered him to pay the union local a little over $120,000 in restitution. Crawley appealed his conviction and sentence.

Crawley's challenge to his conviction concerned 404(b) evidence that he argued was improperly admitted. At trial, a union member testified that

[i]n September 2002, Crawley invited Kyle to his home after work hours. There, the two men engaged in an “assembly-line” process: using several different pens, Crawley marked and folded each ballot; he then handed it to Kyle, who placed and sealed the ballot in the return envelope. Crawley used the Union’s membership roster to decide which members were unlikely to vote in the election, such as part-time UPS employees. Kyle testified that peel-and-stick labels generated by the Union’s computer were used on the envelopes to avoid their being challenged. Thereafter, the completed ballots were separated by the zip codes for the “voters” and mailed from various post offices.

Not content to rely on this testimony, the Government called another witness who testified, over Crawley's objection, that Crawley "committed similar acts of voter fraud [in the 1999 election, as well]; and devised the strategy of duplicating ballots for those members least likely to vote." Following that testimony, the district court instructed the jury that "the evidence of the 1999 voter fraud could be considered only for determining Crawley’s 'motive, intent, identity, knowledge, opportunity, plan, preparation, and the absence of mistake or accident in engaging in' the 2002 voter fraud."

Applying the Fifth Circuit's two-prong Beechum test, the court of appeals found no error in admission of the testimony concerning the 1999 election. Under the first prong, the court held that the evidence was relevant to Crawley's intent, insofar as it showed that Crawley "acted with the same specific intent in 2002 as he had in 1999." The court rejected Crawley's argument that the evidence was not in fact relevant to intent because his defense was that someone else submitted the fake ballots:

Regardless of the defenses asserted by Crawley, the Government was required to prove specific intent as an essential element of the charged offenses. Therefore, the extrinsic evidence was offered to demonstrate Crawley acted with the requisite intent to commit those offenses. Based on the testimony regarding the 1999 fraud, the jury could rationally conclude that, “because the defendant had unlawful intent in the extrinsic offense [1999 fraud], it is less likely that he had lawful intent in the present offense [2002 fraud]”. Gordon, 780 F.2d at 1173. The testimony, therefore, was offered for a legitimate purpose under Rule 404(b). (Because the evidence was properly offered to show intent, we need not decide whether, in addition, it was admissible to demonstrate motive, as was also held by the district court.)

The court then concluded, as to the second Beechum prong, that the prejudicial impact of the evidence did not substantially outweigh its probative value, because the district court instructed the jury "that the 1999 voter-fraud evidence could only be considered for the limited purpose of determining motive, intent, identity, knowledge, opportunity, plan, preparation, and the absence of mistake or accident in engaging in the 2002 voter fraud. Even assuming, therefore, that admission of the extrinsic evidence posed a risk of undue prejudice, that risk was greatly minimized by the court’s limiting instruction."

(Both of these conclusions are questionable. If anything, given Crawley's defense the evidence was relevant to identity, not intent. But even if, as the court says, the 1999 voter-fraud evidence was relevant to intent, it had little to no probative value in relation to the unfairly prejudicial he-did-it-before-so-he-must-have-done-it-again inference that 404(b) exists to prevent. After all, if the jury were to conclude that Crawley was behind the 2002 ballot falsification, it's all but inconceivable that they would have trouble finding that he did so with the specific intent to defraud the union. It's also hard to see how the district court's instruction to the jury minimized any prejudice, given that it was simply a boilerplate recitation of permissible 404(b) factors, some of which the Government doesn't even appear to have argued for.)

Crawley also challenged the district court's loss findings for purposes of the Guidelines calculations and the restitution award. The district court used Crawley's salary and benefits for both calculations, as well as the $20,000 kickback. To oversimplify things a bit, Crawley argued that the loss amount for both purposes should be limited to the $20,000 kickback, because the union got what it paid for in the form of his services as local president. The court of appeals disagreed, concluding that "[b]y procuring a union office by fraud," Crawley "render[ed] any service valueless ab initio." Additionally, it wasn't possible to sever Crawley's legitimate services to the union from his non-legitimate services. Thus, the district court did not clearly err in the Guidelines calculation, nor did it abuse its discretion in determining the restitution amount.

(This, too, is questionable. Is it really true that Crawley's services as union president were "valueless ab initio"? Unless everything he did as president was corrupt, the union got at least some value out of his service. Doesn't the union as victim receive a windfall by getting all of Crawley's salary and benefits back when they would have otherwise had to pay someone else to do the job? To be fair, the court addresses these points, just not convincingly in my opinion.)

Court Declines to Decide Whether General Appeal Waiver Bars Review of Restitution Order

United States v. Smith, No. 07-60385 (5th Cir. May 16, 2008) (King, DeMoss, Benavides)

Smith pleaded guilty pursuant to a plea agreement providing that she "expressly waives her rights to appeal the conviction or sentence imposed in this case, and the manner in which the sentence was imposed, on any ground whatsoever." She nonetheless appealed, arguing that there was insufficient evidence to support the district court's restitution order.

The court began by noting that, "[i]n two unpublished cases, we have held that an appeal waiver barred review of a restitution order, but both of those cases involved plea agreements that explicitly stated that the defendant agreed to pay restitution in an amount determined by the district court." Unlike those cases, Smith's plea agreement did not address restitution. The district court also failed to tell Smith that any restitution order would be convered by the appeal waiver, although the matter came up briefly at the plea colloquy.

Nevertheless, the court "decline[d] to address the issue of whether a general appeal waiver bars review of a restitution order when the plea agreement does not discuss restitution"---although it cited several circuits that have held such a waiver does not bar the appeal---because it found that there was adequate evidence to support the restitution order: the PSR's loss amount calculation was based on an interview with an employee of the victim, and although Smith offered a different calculation, she offered no evidence to explain her calculation or to rebut the PSR's calculation. Thus, the court affirmed the restitution order, citing the familiar---and questionable---precedents holding that "[t]he district court may adopt the facts contained in a presentence report without further inquiry if those facts have an adequate evidentiary basis with sufficient indicia of reliability and the defendant does not present rebuttal evidence or otherwise demonstrate that the information in the PSR is unreliable," and that "[t]he defendant bears the burden of showing that the information in the PSR relied on by the district court is materially untrue."

Restitution Order Vacated in Concealment of Bankruptcy Assets Case

United States v. Maturin, No. 05-30756 (5th Cir. Jun. 1, 2007) (Jolly, Higginbotham, Dennis)

This isn't the most exciting opinion you'll ever read, but at least it's not another crime-of-violence case, right? Plus, it's got some good language on plain error.

Maturin set up an account to conceal assets from creditors and the trustee in a bankruptcy proceeding. All told, he deposited over $160,000 worth of funds that belonged to the bankruptcy estate into the account. After a creditor got wise to this, Maturin was indicted on 28 counts of unlawful concealment of assets (18 U.S.C. § 152(1)) and one count of making a false statement under oath (18 U.S.C. § 152(2)).

Maturin reached a plea agreement with the government in which he agreed to plead guilty to a single count charging him with fraudulently depositing $54,384.43 into the concealed account, in exchange for dismissal of the remaining charges. The plea agreement was silent on restitution. Maturin stated, in the factual basis for his guilty plea, "that he believed that he had deposited a total of roughly $130,000 in the concealed account, but that he was not sure of the exact amount." At sentencing, the district court adopted the PSR's recommendation and ordered Maturin to pay restitution in the amount of $164,988.98, the total amount that Maturin had deposited in the concealed account.

On appeal, Maturin challenged the restitution order as excessive on the ground that it was "based on charges and conduct for which [he] was not convicted." Because he did not object at the time of sentencing, the court reviewed for plain error.

The court began with an extensive discussion of when restitution is required or permitted under the Mandatory Victims Restitution Act of 1996 and the Victim and Witness Protection Act. (It also reiterated that Hughey v. United States remains good law, notwithstanding statutory changes since the Supreme Court's decision in that case. Hughey, as you'll recall, held that as a general rule the MVRA limits restitution awards to "those losses that resulted directly from the offense for which the defendant was convicted.") You can read the discussion of the stautory ins-and-outs if you're interested, but the question ultimately boiled down to this:

[T]o determine the propriety of the district court’s restitution order, this court must consider whether the offense for which Maturin was convicted includes as an element a scheme, conspiracy, or pattern of activity, and/or whether the parties agreed in Maturin’s plea agreement that he would be subject to restitution for losses based on the dismissed counts of the indictment.

The court held that the restitution order was not supported on either ground. First, the court concluded, based on the text of the statute and the Fifth Circuit pattern jury instruction on the offense, that 18 U.S.C. § 152(1) plainly lacks "as an element proof of a scheme, conspiracy, or pattern of criminal activity, and, accordingly, Maturin’s conviction under that section cannot, without more, support the district court’s restitution order." Second, the court held that the record did not show an agreement by the parties that Maturin would be liable for the full $160+ grand, with an interesting observation about Maturin's failure to object at sentencing:

We do not read [United States v. Arnold] to hold that a defendant’s failure to object to the pre-sentence investigation report or the district court’s restitution order is sufficient to establish that the defendant agreed to pay the full amount of restitution that was ultimately ordered where, as here, the record is otherwise devoid of evidence of any agreement between the government and the defendant concerning restitution.

But what about plain error? "While this court has never expressly determined that the crime of concealing assets in a bankruptcy proceeding does not have a scheme, conspiracy, or pattern of criminal activity as an element, as we discussed above, it is indisputably clear from a reading of the plain statutory language, as well as this court’s pattern jury instructions, that the statute contains no such element. We therefore find that the district court’s error was plain." And the error affected Maturin's substantial rights, insofar as it put him on the hook for three times as much restitution as the district court actually had the authority to award. Result: restitution award vacated with a remand for the district court to have another go at it.